Is it possible we get a paradoxical reaction to rate cut/hike?
They probably won’t actually move on the rates side and will let long duration assets run off the balance sheet to get other voters to cut but if Warsh actually cuts rates, wouldn’t the long end rise with inflation expectation rising and in return actually increase the cost of capital for most firms financing at 5+ years?
And on the other hand if they hike, the long end falls and makes it actually cheaper to borrow?
If they really move away from ample reserve regime, I feel like long end blowing out is so likely and a rate cut on top of that might actually meaningfully slowdown the economy.