Long end of the curve more important than Fed rate decision: Fidelity Investments’ Jurrien Timmer

Monetary Policy & Fed's Actions - The Fed's dual mandates of growth and inflation are now equally important, a shift from the past 15 years where growth shocks allowed for asymmetric easing [2] - The Fed funds rate, currently at 4 and 3/8%, has room for a couple of cuts to reach a neutral rate, estimated at inflation plus 100 basis points [2] - The market's reaction to the Fed's actions, particularly at the long end of the curve, is more critical than the Fed's direct control over short-term rates [3][4] - The Fed is likely monitoring fiscal policy to avoid repeating the 2021 scenario where it underestimated fiscal stimulus and delayed tightening [6] - The Fed primarily focuses on core inflation, currently around 25% to 26% based on core PCE, and may overlook temporary oil price spikes due to geopolitics [8][9] - The market and the Fed are currently in agreement regarding the future path of interest rates, as indicated by the alignment between the dots and the forward curve [14] Inflation & Economic Outlook - While inflation has decreased to 25%, it hasn't consistently fallen below 2%, which is necessary for the 5-year average to return to 2% [10] - Rising oil prices could impact the tips market and the intermediate part of the yield curve, but the Fed is likely to look beyond temporary spikes [9][10] - The level above 45% at the long end of the curve is not conducive to positive economic outcomes [4] Market Indicators & Fed's Communication - The "dots" are less relevant now that the Fed funds rate is at 4 and 3/8%, as they were initially designed for forward guidance at the zero lower bound [13] - The forward curve, specifically the SOFR curve, serves as a real-time indicator of market expectations, making the "dots" less impactful [14]