FEX - How Durable Is The Fed's Dovish Turn?
The Federal Reserve's recently communicated change in its outlook for monetary policy has led to concerns that the Fed is overreacting to market volatility, or worse, succumbing to political pressures. However, we believe there is a more compelling reason for the dovish shift.
Policymakers are now faced with the possibility that the current level of the federal funds rate (2.25%-2.5%) is the terminal level of this cycle. This is important because it implies that, in the event of an economic downturn, the Fed has less room to stimulate the economy by cutting interest rates before