The San Francisco Fed is out with an interesting report that argues that — using proxy data — that monetary policy has been substantially tighter than the federal feds rate indicates.
The implication would be that the Fed doesn’t need to tighten as much in the future.
Of course, this is just one piece of research and it includes enough uncertainty that it certainly wouldn’t overshadown Powell’s stated risk management approach that means it’s better to overtighten and cut later than undertighten and face more inflation.
Read it here.
Their proxy measure “uses public and private borrowing rates and spreads to
infer the broad stance of monetary policy. When the FOMC uses additional
tools, such as forward guidance or changes in the balance sheet, these
policy actions affect financial conditions, which the proxy rate
translates into an analogous level of the federal funds rate. In other
words, our measure interprets changes in financial conditions as if
these conditions were driven solely by the funds rate.”
Really, all this shows is that financial markets are forward looking.