Momentous Fed meeting: Policymakers face narrowing margin for error
WEEKLY MARKET COMMENTARY |
This week’s Federal Open Market Committee meeting is a major economic event that will set in motion a series of monetary policy decisions that will culminate in the central bank running up against the long run real neutral interest rate, which we estimate at or near 3 percent, within the next 12 months.
With the spread between the U.S. 10-year Treasury yield and two-year Treasury note yield currently at about 45 basis points, the margin for error is narrowing with each policy decision. As a result, the Federal Reserve may eventually begin to face criticism from investors and fiscal policymakers that they are prematurely shortening the businesses cycle as the yield curve flattens further or reaches the point of inversion.