The U.S. central bank is currently set to phase out its asset-purchase program in mid-2022 under a plan announced at the start of November to slow buying by $15 billion a month.
Signs are growing that market is also getting nervous. The yield curve --- a broad measure the expected trajectory of borrowing costs -- has narrowed to levels levels last seen since the pandemic first hit, with rates traders wagering the Fed will have to cut rates again in 2024.
Yet Pozsar maintains that the Fed can steepen the slope by driving up term premia instead -- the technical term for the extra yield investors demand to hold longer-date notes -- without killing growth.
“The decisions of central bankers are always redistributive,” he said. “For decades, redistribution went from labor to capital. Maybe it’s time to go the other way next.”
--With assistance from James Hirai.
This article was provided by Bloomberg News.