WSJ report on rate caps
The move up in 10-year US rates last week was a watershed for the broader risk trade but the Fed might not like to see too much steepening.
The WSJ writes today that "Fed officials are thinking hard about" yield curve control, or pegging various durations at certain levels.
It's not clear from the article whether that's congecture, speculation or some kind of leak. Unlike in the pre-Yellen era, it's been rare for leaks to the WSJ on Fed thinking.
However there is a detail in the report that suggests this is beyond conjecture:
If the Fed concludes it is likely to hold rates near zero for at least three years, it could amplify this commitment by capping yields on every Treasury security that matures before June 2023.
Another debate the article touches on is forward guidance and whether to tie it to the calendar or to economic outcomes.
Yield caps would be a natural complement to the calendar-based guidance but could be trickier to communicate if paired with outcome-based guidance.
The other tough part is executing an exit from these policies that isn't extremely disruptive.
Overall, I don't think there's anything here that's market moving but it's certainly worth a read. Also see: The Federal Reserve decision is Wednesday: Three things to watch for
