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In One Chart: Why the Fed needs to stop ‘back seat’ driving, in one chart

It has become accepted wisdom that the Federal Reserve, despite its claims to be “data dependent,” is also “market dependent”—making it reluctant to further raise interest rates for fear of upsetting financial markets and driving down asset prices.

Lena Komileva, chief economist at London-based G Plus Economics, offers the chart below in the wake of Friday’s weaker-than-expected August U.S. jobs report to illustrate:

G+ Economics

She observes that the last time the U.S. labor market was this strong, the fed-funds rate was much higher, while the last time market expectations for the future fed-funds rate (represented by the 5-year/5-year real rate) were this low, the U.S.

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