UBS Morning Adviser

As we head into this year’s final FOMC, we should not forget that the Fed’s forward guidance, issued via its own projections, is just as important for future policy execution – if not more so – as any tapering decision itself. In addition to the expected Fed Funds Target rates for the coming years, markets should probably take a keener interest in where the FOMC current sees the ‘longer-run’ target rate. In light of the focus on ‘secular stagnation’ (especially from Larry Summers), pushing longrun rate guidance downwards would give credence to the view that the Fed plans on staying ‘lower’ for much longer. Yet, as tempting as fresh dollar shorts are in this case, it appears some rates markets already have stagnation priced.