Monetary Policy Catch-22

Mid-week market update: As I expected, the Fed unveiled a dovish hold at its June FOMC meeting, as predicted by Tim Duy:

The Fed is likely to turn more dovish this week and open up the possibility of a rate cut. I think they still need more data to justify a rate cut. Another jobs report alone the lines of the May report would go a long way toward supporting that cut in July.

Out with “patience”, and in with “act as appropriate to sustain the expansion”* as the new mantra of monetary policy. The greenback feel, and the bond market reacted with a bull steepening. Interest rates fell across the board, but the yield curve steepened.

However, this sets up a difficult Catch-22 for Fed monetary policy makers.

The full post can be found here.

* Colloquial translation: “An ounce of prevention is worth a pound of cure”.