1/x RQOTW: As mentioned last wk, this wk is a summary of the responses for discussion. @R_Perli @MagnusMacro @AMKcm @JorgeCalderonMx @darioperkins @DomWh1te @naufalsanaullah @peterdwilliams @sassyscrofa @EffMktHype @MarketInterest @pauleluard @GHBurnsCFA

2/x No one thinks there is a level of longer-term inflation (5y5y BEs) where the Fed would be worried unless it starts tightening FCONs. This is despite the fact that the Fed does not want to see a shift in longer-term infl exp away from 2% (they would like to see >2 over 5yr)

3/x Consensus that neutral rate is <2% (~1.5-1.75) yet most see +TP. Since no one said TP would be very large, you can argue that longer-dated fwds are pricing this expectation now and the curve should start flattening not steepening in many parts of curve if fintwit is right.

4/x most disagreed upon Q was probability the Fed will be able to hike, ranging from low/5% to >25%. While FF path shallow = uncertainty on timing of liftoff; tsy fwds high = confidence in the Fed. Notable market disconnect for those w/ conviction

5/x Also disagreement over whether FAIT = hiking above neutral. IF successful the only way to argue it’s less likely is you think the Fed signaling rates may go above neutral is enough to tighten FCONs. Because an inflation overshoot should be cured w/ restrictive policy

6/ to me FAIT = Fed wants to raise expectations of neutral. They then want to hike above neutral briefly to bring down that overheating of eco which generates inflation >2% and then cut back to equilibrium for remainder of cycle. They don’t want LR inf expectations to chg from 2%

7/ next week questions will be back. Feel free to DM with suggestions. Have gotten a few already.