Tighter financial conditions won’t stop the Fed

Although the tightening of financial conditions has persuaded the Fed to hold off from tightening monetary policy on several occasions over the past couple of years, we doubt that the recent surge in the dollar and Treasury yields will prove to be an obstacle for two main reasons. First, the moves are modest when compared with earlier swings and, second, the latest surges reflect growing expectations of a big fiscal stimulus next year, which would boost both real economic growth and inflation.