Richard Clarida on This Tricky Moment for the Federal Reserve

Bullish:

• $BONDS - Expect higher long-term bond yields and a steeper yield curve compared to pre-pandemic conditions.

  • “We think the front end of the curve may not be all that higher, but long rates could be higher because the curve will be steeper. It was very flat in the decade before the the pandemic.”

    Richard·16:53

Bearish:

• $HOUSING - Higher long-term yields are likely to keep mortgage rates elevated, potentially negatively impacting the housing market.

  • “Mortgages will tend yields will tend to move closely not so much with the funds rate, but the longer end of the yield curve.”

    Richard·17:28
• $USD - A 'soft landing' scenario with gradually decreasing inflation and modest growth could lead to potential Fed rate cuts, potentially weakening the dollar.

  • “Inflation continues to return gradually to 2% in the context of a fully employed economy, perhaps a modest downshift in growth from maybe 3% down to somewhere in the twos.”

    Richard·25:59