Atlanta Fed President Dennis Lockhart was talking about discrepancies between Americans’ view of inflation and that of the US central bank in his Tuesday ‘disconnect’ speech. But you can see that disconnect most clearly in the discrepancy between market interest rate expectations and the Fed’s actual rates.
Here’s a recent chart from Bank of America Merrill Lynch:
That’s the forward curve for the Fed funds rate plotted at of the end of each quarter against the actual (effective) rate. Now, BofAML’s Ethan Harris says some of the upward slope in those curves will be down to term and risk premia, but for the most part it’s just investors’ expectation of an imminent rate rise.
Fed rate hikes are ‘always a day away’ for the market.
Just not for the actual Fed.
Related links:
The interest rate disconnect - FT Alphaville, 2009
Deflation dead and deader, Federal Reserve-style - FT Alphaville, 2009