Last week's economic news -- here, here, here, and here if you weren't paying attention -- left no impression on the path of the federal funds rate estimated from options on fed funds futures:
Meanwhile, broader market rates moved in the wrong direction to comfort those who worry about the yield curve turning south.
If the funds rate really does make it to 4% and longer-term rates don't budge, we would be looking at a 50 basis point spread between the 10-year Treasury yield and the funds rate (by November). As I've argued before, historically this level of the spread (and lower) has been consistent with respectable as well as not-so-respectable economic growth. But I'll admit the interesting question is how flat that picture can get and still be consistent with "accommodative" policy.
New readers who wonder what this is all about can refer to the references in last week's post on this topic. For faithful, data-addicted readers, food for your jones:
Download implied_pdf_october_081905.xls