The current market debate on interest rates has tended to focus only on the money rate of interest, and hence on when the Federal Reserve might start to cut short term rates. The idea is that a cut in rates will make money cheaper and therefore boost equities. Over...

The bond market remains confused about interest rates, which is why it continues to generate such unusual levels of volatility. One possible explanation for this ongoing uncertainty is that there is a fundamental difference of opinion between bond traders who have...

The last 6 months have been a boon for credit cycle investors who avoided significant losses arising from the fall in bond prices. The data has been clear for some time, however, that the market was mispricing bonds. See here and here. The market has now realised its...

A recent Odd Lots discussion with Austan Goolsbee, president of the Federal Reserve Bank of Chicago, raised an important philosophical question about the nature and level of interest rates. As Joe put it, why do we have to put up with mortgage rates at 8% if inflation...

Federal Reserve Chair Jerome Powell throughout 2023 has been hawkish on inflation and the need to increase and maintain higher levels of interest rates. The market reaction during the first half of 2023 was that this would trigger a recession, given the view that...

Markets on the whole do a decent job of synthesizing information at the micro level, but they often get the macro signals wrong as was noted by Paul Samuelson. In his 1998 paper, Samuelson argued that there is no persuasive evidence that macro market inefficiency is...