The investment firm notes that the probability of extreme outcomes, such as significant hikes or deep cuts, has diminished since the last Federal Open Market Committee (FOMC) meeting.
Despite moderated inflation uncertainty, the wide distribution of gross domestic product (GDP) growth forecasts keeps the economic outlook unclear, analysts said.
“Our density forecasts of key macroeconomic variables are too fat, still,” they said.
“Yes, the distribution of inflation outcomes has narrowed meaningfully this cycle. But as we’ve said over and over, the same isn’t so for real GDP growth. Meaningful odds on recession, yet also on brisk growth, cannot bolster much ‘confidence’ about the Fed.”
The analysts also point to the market’s pricing of short-term interest rates, which they believe may increase relative to longer-dated yields, implying that a steeper yield curve remains a distant prospect.
They emphasize that the nominal yield curve isn’t inverted enough based on fundamental models, hinting at potential rallies in 2-year and 10-year yields by year-end.
“True, the signals are hardly unprecedented. Even so, the results suggest that a steeper curve remains a ways off,” Piper continued.
Source: Economy - investing.com
