Salient to Investors:
Bill Gross at Pimco said:
- If you trust only one thing, trust that once QE is gone and the policy rate becomes the focus, that fed funds will stay lower than expected for a long, long time. The market and the Fed are wrong is forecasting fed funds will be 1 percent higher by late 2015 and another 1 percent higher by December 2016.
- The Fed will increasingly focus on forward guidance as a policy tool when it tapers, so investors should buy Treasury debt with shorter maturities, volatility sales explicitly priced in 30-yr agency mortgages, and TIPS, and avoid longer-term Treasuries.
- The US and global economy may have to get used to financial repression and low policy rates for decades to come.
- Now that more certainty and liquidity have been restored, it is time for the policy rate and forward guidance to assume control.
The median Fed estimate see the fed funds rate target at 2 percent at the end of 2016, and 4 percent when we reach full employment and stable prices.
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