James Bullard, Speech: Is the Fed “Behind the Curve”?  Two Interpretations

“Credible forward guidance means market interest rates have increased substantially in advance of tangible Fed action. This provides another definition of “behind the curve,” and the Fed is not as far behind based on this definition.”

“In light of the forward guidance that has been given by the Fed since the fourth quarter of 2021, the 2-year Treasury yield may provide a better representation of where Fed policy is likely to be in the near future.”

“The value of the 2-year Treasury yield as of May 5 was 2.71%, about 90 basis points shy of the rate recommended in the simple Taylor-type rule calculation.”

• Bullard’s Taylor Rule calc (as of 5/6/22) was 3.63%.

“This suggests the Fed is not as far “behind the curve,” although it would still have to raise the policy rate to ratify the forward guidance.”