• What’s driving the bond market sell-off? To paraphrase former US President Bill Clinton: it’s the Federal Reserve, stupid. Fed-speakers across the board – from dove to hawk – all sound the same these days. A case in point is yesterday’s speech by Vice Chair Brainard, who has transformed from the leading dove to Bullard-lite. Clearly, Fed-speakers want to tighten much faster than the Fed is used to because inflation is really uncomfortably high right now. Really, truly, uncomfortably high. But there is also something of a paradox here. The Fed is whipping up market pricing for rate hikes to unrealistic levels because it has no choice, as we will explain below.

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