This cycle is different - Fed Funds rate lower for longer
This cycle is different - Fed Funds rate lower for longer. The new normal for neutral Fed Funds is 2.5% - 3.0% (i.e. in this cycle). That is derived by 1% productivity growth plus 1.5 to 2.0% inflation. In the next cycle there's a strong argument for a reversion to 4 - 5% - that, however, depends on the Fed's response to economic weakness in the next recession - more QE would be counter productive in that scenario (albeit likely). We expect a Fed Funds peak of 2 to 2.5% (maximum) or lower. Low trend productivity growth dictates a low peak in Fed Funds. This level could be reached by mid 2016.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Livewire Exclusive brings you exclusive content from a wide range of leading fund managers and investment professionals.
Comments
Comments
Sign In or Join Free to comment