MacroResearchBoard

The Economy And Fed Policy: It Really Is Different This Time – October 21, 2024

A just-published report updated our views on global asset markets and macro trends. While one is never supposed to claim that “it is different this time”, this has clearly been the case this cycle: U.S. financial conditions have diverged meaningfully from policy rates since the Fed began hiking in 2022, which has been supportive of economic growth.

A rising policy rate would have normally underpinned tightening financial conditions; instead, and contrary to expectations, U.S. financial conditions became slightly easier between 2022-2024. That financial conditions have remained relatively easy underscores our view that the Fed funds rate never became truly restrictive. And now policy rates are being lowered in the U.S. and in most DM economies, which will provide further economic support and help to sustain risk-on.

Net: above-potential economic growth in the U.S. will persist, which will ultimately prove bearish for Treasurys.