Bond Market Sensitivity To Inflation Data Increases Post Fed Rate Hikes

According to PANews, a report presented by Michael Bauer, Carolin Pflueger, and Adi Sunderam at the Jackson Hole annual meeting indicates that the bond market has become more sensitive to inflation data following the Federal Reserve's initiation of the rate hike cycle in 2022. This shift suggests that the public did not fully understand the Federal Open Market Committee's (FOMC) monetary policy strategy prior to the rate hikes. The report highlights that, consistent with the perceived change in policy response, event studies show a significant increase in the sensitivity of interest rates to unexpected inflation data post-rate hikes. This heightened sensitivity to inflation may aid in the transmission of monetary policy to the real economy and improve the Federal Reserve's inflation-unemployment trade-off.