Downward Structural Pressure On Rates: Bullard And Kaplan

On market reaction to last week's FOMC meeting, Bullard and Kaplan indirectly address the flattening of the curve in their comments at an online event, pointing to structural factors for US rates to remain low (and thus potentially suggesting further reason why the two of them seem less concerned with the Fed pulling accommodation away sooner than most of their FOMC colleagues):

• Bullard says markets are a little bit "confused"; we're going to allow inflation to be above target so that has to be priced in, but we've still got very low rates in Europe and Japan. Don't see how US rates can go much higher than they go there, and that's what's capping US rates. A lot of factors in this market, no-one really knows.
• Kaplan says there are 3-4 factors that are keeping rates down. Yes Fed purchases have some effect; on the other hand, if you look out on the horizon, downside structural rate factors are strong. US rates are relatively lower than many other parts of the world, global money wants to own Tsys / USD. Maybe market will want to own Tsys at slightly higher rates, but there will continue to be a strong bid.

On raising ON RRP and IOER rates, questioned whether this was too "generous" esp for money market funds (some in the market have made this critical observation):

• Kaplan says the Fed's move was intended as largely a technical matter. Bullard concurs, and says the FOMC's focus is on control of the policy rate; these are merely technical adjustments driven by the New York Desk.