The succession battle at the Fed and the Fed’s reaction function

Long-term interest rates are largely a reflection of expected future short-term future interest rates plus a term premium. So when you see yields move up, it reflects either an increase in term premiums from uncertainty or a change in the consensus view of the expected future path of policy rates. This means that rates are anchored by present rates, inflation expectations and the Fed's reaction function. The Fed's reaction function is the key variable here as the other two aspects are known quan...

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