Interest rates really should have went up a couple of years ago. Not just for the sake of stemming inflation, but what good is the tool of lower rates in bad times when they are already at bottom in good times? If something goes wrong (or more wrong) we will have no effective economic tools available because they are constantly running as if we are in crisis already.
This is so accurate. Fed is addicted to low rates and doesn’t have the will to ever raise them.
The fed funds rate is technically disconnected from, but highly correlated to, the TSY yield curve, particularly at the short end.
Our current sovereign debt-to-GDP ratio does not really permit a 10y TSY yield above about 4.5% without calling into question our ability to service the debt.
Powell is painted into a corner - he simply can't hike significantly. He faces the short term prospect of a market tantrum (which the Fed is very sensitive to), but more importantly a long term sovereign servicing crisis.
The good news is that the average maturity on the debt at 65 months means that the FRB can, if they choose, find the cajones to hike rates and then "retire for personal reasons" before the real pain hits, at which point it will be someone else's problem.