We are skeptical of the signal from the yield curve now given the likely distortion from non-U.S. as well as U.S. QE and negative bond yields in much of the world.
The case for rate cuts is much weaker now than in previous mid-cycle Fed easings.
The latest data, and still-accommodative financial conditions, suggest the Fed does not have to cut rates aggressively.
We can see the meaningful risk of a recession starting as soon as 2020.
The possible need for policy to get restrictive, not just neutral, is likely to become a regular talking point for Fed officials in the months ahead.
There is no way to know the precise level, and it can change over time.
HFE’s Chief U.S. Economist Jim O’Sullivan answers questions about the outlook for wages, inflation and Fed tightening this year and next.