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One striking chart suggests the Fed is making a big mistake

Aug 26, 2024, 12:04 IST

The Federal Reserve keeps telling the bond market it wants interest rates to move higher, but traders aren't listening.

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That suggests investors don't believe the Fed's justification for interest rate increases, which are predicated not only on recent economic improvement but also on a continued bright outlook.

One startling chart from Societe Generale's Albert Edwards illustrates the Fed's dilemma. Two-year notes are historically the maturity that is most responsive to moves in the official federal funds rate.

Yet look at what's happened to the two-year note's yield this year as the Fed ratcheted up its monetary tightening campaign despite an inflation rate that continues to undershoot the central bank's 2% target: Absolutely nothing.

Societe Generale

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