One idea circulating (Deutsche among others) is to use the Bank of England forward guidance to guess what the Fed will do.
Rather than choosing a new threshold, the Fed would say that (i) will hike later because there are lots of idle capacity, (ii) then will raise rates very gradually, and (iii) the terminal rate will be lower than it used to be. By doing so, it would be able to lower the short, belly and long part of curve, respectively.
My take is that (i) is already happening. (ii) will never happen, as it is contrary to recent Fed thinking, concerned about the bubble making effects of too slow and predictable monetary policy. And (ii) is already in those dots, where they say fed fund in the long run will be 4%.
Rather than choosing a new threshold, the Fed would say that (i) will hike later because there are lots of idle capacity, (ii) then will raise rates very gradually, and (iii) the terminal rate will be lower than it used to be. By doing so, it would be able to lower the short, belly and long part of curve, respectively.
My take is that (i) is already happening. (ii) will never happen, as it is contrary to recent Fed thinking, concerned about the bubble making effects of too slow and predictable monetary policy. And (ii) is already in those dots, where they say fed fund in the long run will be 4%.
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