Chart of the Week 6-22-2022

MONETARY POLICY

The Fed continues to tighten financial conditions, having raised the funds rate 75bps to 1.50-1.75% last week following “eye-catching” increases in inflation expectations. While the Fed only directly tightens through short-term interest rates, market perception of the Fed's policy path consequently influences long-term interest rates, credit spreads, equity prices, and the US dollar. Taken together, these effects may help slow aggregate demand and ease inflation.