February 07, 2012
Schwab Bond Insights: The Transparent Fed
by Kathy A. Jones Vice President, Fixed Income Strategist, Schwab Center for Financial Research and Rob Williams, Director of Income Planning, Schwab Center for Financial Research
Last week, the Fed unveiled a new communications strategy. They provided forecasts for growth, inflation and interest rates for the next several years. The negative bias in the rate forecasts surprised bond markets. They point to the likelihood, given current information, that the Fed will keep short-term interest rates at zero until the end of 2014 due to expectations of slow growth and subdued inflation. One view on these forecasts is that it’s too difficult to forecast so far into the future and that the Fed might be wrong and be forced to reverse course. Another view (ours, for the record) is that increased transparency is good, a positive in an open market.
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