The Fed continues to overestimate the amount of inflation

There has been much debate around in recent times on if and when the US Central Bank will lift rates. Chad Slater, Joint CIO of Morphic Asset Management has strong views on why the market has lost faith in the Fed’s communication. “I think the reality of the last two years is that the market is more on top of the deflationary cycle than the Fed. The Fed has consistently overestimated the amount of inflation coming through.” Slater also believes that, “the correlation pre 2002 was a 0.8 correlation between monetary policy and employment; it has dropped to less than 0.1, i.e there is no correlation now and they are stuck in their old mindset. Every time they get to the point that they go to raise rates the reality stares them down. If they do go they will communicate it before they go…the point the market is trying to get across at the moment is not whether they go in September, December or March it’s that they are not going very far.”