Fed’s Kashkari: The market may be taking the signal that the neutral rate is higher

• Around 40% of the move higher in 10s since Sept is inflation compensation
• Around 60% is real rates
• The market may be taking the signal that the neutral rate is higher
• Could also be because of fiscal deficits
• The most important number in the jobs report is 4.0% unemployment rate
• The feedback that I’m getting is that the economy is strong
• The economy is in a good place, we want to keep it there while getting inflation all the way back to our target
• We will wait until we get more information on taxes, tariffs, immigration
• The last 9 months of inflation was very good
• I don’t know why we would need to see why we would keep rates here if inflation comes down
• I would expect Fed funds to be modestly lower this year
• We might not get inflation all the way back to 2% this year because of mechanics

This was reasonably dovish. The early points were on why the 10-year yield has risen 80 bps since the Fed started cutting rates. In turn, US 10s are up 5 bps to 4.49% and that’s helping to lift the US dollar.

This article was written by Adam Button at www.forexlive.com.