The market is in increasing doubt over what the Fed will do and by how much.
Kansas City Fed Policy Rate Uncertainty
Please consider the Kansas City Fed Policy Rate Uncertainty measure.
The Kansas City Fed’s Measure of Policy Rate Uncertainty (KC PRU) is a daily measure of market-based uncertainty regarding where short-term U.S. interest rates will be one year in the future.
The KC PRU is constructed using the same methodology as the Chicago Board Options Exchange Volatility Index (CBOE VIX) on Chicago Mercantile Exchange’s (CME) options data. We use Eurodollar contracts prior to 2023 and contracts on the Secured Overnight Financing Rate (SOFR) from 2023 onward. The Economic Review article “Introducing the Kansas City Fed’s Measure of Policy Rate Uncertainty” provides further details on the index, including a technical appendix describing the measure’s construction. Data are updated on a daily basis.
The KC PRU is calculated through an automated procedure using publicly traded options contracts. The measure does not reflect the views of the Federal Reserve Bank of Kansas City, its staff, or the Federal Reserve System.
One percentage point roughly means the market expects the one-year-ahead rate to be within about ±1 percentage point with 68% confidence, similar to how VIX works for stocks.
Long-Term Measure of Policy Rate Uncertainty (KC PRU)
Key Takeaways (1989–2025)
| Period | Peak / Behavior | What was happening |
|---|---|---|
| 1989–1990 | Very high (~1.88) | Early data; post-1987 crash + savings & loan crisis + rate volatility |
| 1990s–early 2000s | Frequent spikes (1.5–1.8) | Recessions (1990, 2001), Asian financial crisis, dot-com bubble |
| 2008–2009 | Sharp spike to 1.94 | Global Financial Crisis — massive uncertainty about Fed response |
| 2010–2019 | Generally lower, with dips to ~0.35 | A stable low-rate environment, clear Fed policy guidance |
| 2020 | Brief spike then drop | COVID shock — Fed cut rates to zero quickly, uncertainty resolved fast |
| 2022–early 2023 | Highest on record (~2.18) | Inflation surge → aggressive Fed hiking cycle + banking stresses (SVB) |
| 2023–2025 | Sharp decline to ~1.12 | Fed paused hikes, then started cutting in 2024; markets gained clarity |
Detail Interpretation
- Policy rate uncertainty is mean-reverting but has clear regime shifts. It rises sharply during economic stress, major Fed pivots, or when inflation is unpredictable.
- The 2022 peak stands out as the highest in 35+ years — reflecting the unusual combination of post-pandemic inflation shock + fastest hiking cycle in decades.
Practical Application
- High uncertainty periods often coincide with volatile bond markets, wider credit spreads, and cautious investor behavior.
- Traders and economists watch this as a complement to the VIX — it specifically captures monetary policy confusion.
Era of Forward Guidance Is ending
The era of ridiculous forward guidance repeated month-after-month (even during some of the recent spikes), is coming to an end.
Kevin Warsh cannot control interest rate policy by himself, but he is likely to stop month-to-month forward guidance.
Warsh in Hot Seat
Ending forward guidance, if it happens, will be a bit of self preservation.
Warsh wants lower rates to appease Trump, but the market now thinks the next move is a hike (my opinion for many months).
Bond yields are breaking out. Warsh will not only be fighting the rest of the FOMC committee. He will be fighting the bond market itself.
Good luck with that.
Bond Market on Verge of Crash, Long Bond Yield Near 19-Year High
Early this morning I noted Bond Market on Verge of Crash, Long Bond Yield Near 19-Year High
The bond market thinks as much of Trump’s China visit as I do.
As I type, the 30-year long bond yield is right at the 30-year high, up 11 basis points to 5.125 percent.
Bond Yield Direction
Yields are heading up, as they should, given Trump’s disastrous tariff policy and Mideast policy, both contributing to inflation.
Trump needs a recession to cool demand, as long as it’s not a staflationary recession that kills the jobs market as well.
Unfortunately, a stagflationary outcome looks increasingly likely.
Warsh will not deliver a rate cut in June. And Trump will immediately howl. That much is clear.
Warsh’s baptism of fire is coming right up. Expect Trumpian fireworks on June 17, the next FOMC meeting. The world will be tuned in.
In the Real World
May 12, 2026: CPI Hotter than Expected, Highest in Three Years, a Genuine Disaster
Inflation in April was another scorcher. Here are some month-over-month and year-over-year charts.
May 12, 2026: Real Hourly Earnings Decline Again, No Growth Since Trump Took Office
If it feels like you are not getting ahead, it’s because you aren’t. Six charts.
May 13, 2026: Two Reasons the CPI Report Will Give the Fed Severe Headaches
There are two very troubling aspects of the latest BLS CPI report. Did you spot them?
May 13, 2026: Two Reasons the PPI Report Will Give the Fed Severe Headaches
This morning, I listed two big headaches in the CPI report. Now, it’s the PPI’s turn.
The Fed is cooked…
Let’s put the inflation chips on the table…
1. Oil – Even if we had a peace treaty today, the damage is done for at least the next 9 months, high costs of all fuel across the board – more inflation.
2. Data centers – The build out of all this over capacity is taxing all resources from raw minerals to semiconductor chips to storage to overall computing equipement – more tech inflation and the economy is tech these days.
3. Electricity – When those data centers come online, they will suck up all the electricity – more inflation.
4. Water – My water bill has gone up 8 percent this year and I expect it to go higher as data centers suck up all the water – more inflation.
5. Food – Fertilizer distruptions are going to super charge food costs – more inflation.
6. Healthcare/Medical – 80m geezers getting practically free healthcare will consume ever growing amounts of healthcare / medical stuff – more inflation.
7. ICE / Deportations – While the bigots will glee with more and more deportations, the labor costs of everything else will go up – more inflation.
8. War – Build a bunch of stuff like houses, bridges, office buildings then blow them up, now you have to rebuild – more inflation.
9. Demographic death spiral – not enough kids means not enough labor.
10. Everything else – property taxes, insurance (home/auto/flood), tariffs, de-globalization, $40 trillion in debt, etc. – more inflation.
And the worst chip on the table is the fat orange dumb clown running the poker table.
Got exit strategy? These guys do: https://www.independent.co.uk/news/world/americas/us-politics/americans-leaving-citizenship-emigration-trump-b2975395.html
Do worry, Trump will find a way to make things even worse.™
Trump is the rake.
You misspelled fake.
You asked long ago why I favored democrats over repubs, is it making sense yet or do you need more misery?
https://www.youtube.com/watch?v=rRndMiVIB-w
Cleaver Greene is and always be THE RAKE. Richard Roxburgh.
Have you observed the placement of political and policing authorities? The building or detention facilities and the insurrectionist language?
The US since about the Patriot act has a 100 mile constitution free zone surrounding the US border. No one really talks about the lack of constitutional rights within that zone anymore despite the fact the zone covers the majority of the US population. The “100-mile border zone” is a region extending 100 air miles inland from U.S. land and coastal borders, where federal law authorizes Customs and Border Protection (CBP) to operate with expanded authority. Within this zone, covering two-thirds of the U.S. population, agents can stop/search vehicles and set up checkpoints without a warrant
“.
Scared yet?
Every govt that enters collapse (empire or not) eventually turns on it’s citizens. It becomes tyrannical, it removes freedoms and starts the looting (extreme taxation or even the physical taking) of the citizen resources.
Govts do this because they believe they are the moral authority of the country, and to preserve their power.
The scariest thing in this current collapse is the use of technology that can now monitor and track, in real time, what citizens do and what they consume. Even more so is how this technology can and will be used to blacklists individuals from engaging in society (China’s social credit system is the example).
This is why we are seeing data becoming the new commodity and why the need for all these data centers. The digital cage will be complete once they move from a physical currency to a digital one, and once that happens we will have arrived to the dark age 2.0.
MPO45v2 that’s a short sweet list explaining the pain that’s coming.
Hey, you win a coveted Pin award.
Thanks. I promise I won’t let it get to my head. 🙂
Right. Move to Europe then face war with Russia. Be confined in Mexico or get head cutoff. Im staying. Too old to really worry too much and thankfully we never had kids.
Stay in America get shot at, end up at hospital and walk out with $100k bill. Go bankrupt, move to car, get arrested for vagrancy, get car seized and end up in prison and get stabbed by inmate, get taken to hospital, get shot at on the way, walk out with new $100k bill…etc.
But I agree, if you’re over 70+ just ride it out.
Congrats on the pin!
Looks like black rock is starting to buy power companies. After living under pge for some 10 years that should be the last thing people want.
The Fed’s policy uncertainty is a dog whistle for corporate hedge fund investors, who borrowed cheap money and arbitraged long Treasury yields, to exit their riskier positions.
The Fed is reluctant to add more QE to their balance sheet when they can’t pay existing Treasury debt. The Fed’s work-around has been to decrease FFR and let corporate arbitrage lower long rates.
There is so much money percolating in the economy that there is no place for it to go. The flight to liquidity is an ominous inflection point. The demand for money has risen.
That peak also roughly corresponds with about 40 years of generally declining interest rates for 10-, 20-, and 30-year bonds. Since then, rates have been generally trending up suggesting that the end for the secular bull market in bonds is over for now. I doubt seriously this is signaling secular economic prosperity, rather initiation of the penalties for the fiscal and monetary mismanagement since their prudent management has been absent since initiation of the Great Society and Viet Nam War. The wakeup notice was dollars being excessively exchanged for gold during Nixon’s term. Rather than make necessary modifications to the country’s excessive spending and borrowing, Nixon “temporarily closed dollar convertibility to gold, removing the discipline that gold backing force on policy makers. Interest rate policy uncertainty peaking just might be signaling the chickens are coming home to roost.
Yield curve control was always inevitable. Looks like we are almost there. I don’t think I need to say what that means…
The Fed has not been doing its job for five years now. Inflation has been well above two percent for five straight years, and yet the Fed has been sitting on its hands, or even cutting interest rates in response. Gross incompetence is ultimately the source of the long rate volatility, aka yield increases on long bonds.
PS There is nothing “transitory” about 5+ years of inflation well above the 2% target, currently around 4%, and accelerating rapidly.
Is forward guidance is the fed giving hints as to future policy to keep things stable. If so if the keep things quiet till the last minute expect some graft. Think about it. Ole kevin calls trump to let him know whats up the trump passes it on to his kids who are able to time the market.
Inflation seems to be a world wide problem. Is it the same reasons as here .
AutoZone allegedly sends out ominous warning about oil shortages.
https://www.reddit.com/r/PrepperIntel/comments/1tedhg8/autozone_internal_email_leaked_ref_upcoming_oil/#lightbox
For all you ICE auto lovers, you better run and get your oil changed pronto. The “advice” in this memo is saying to just throw in whatever oil is available for an oil change. I am sure that will do wonders to your engine.
Maybe you can just pour corn oil down the engine too? Who knows, lots of alternatives out there. Lol.
I give AutoZone credit for at least warning people, there are hundreds of things like this that will bite people in the butt in a few months. Of course, if Autozone has no products available, what kind of business and profits do they have?
I asked Perplexity about the oil substitution: “Probably not as a normal substitute. If your car specifically calls for 0W-16, the safer temporary fallback is usually 0W-20 only if your owner’s manual allows it; 5W-20 is thicker at startup and is generally a less preferred substitute”
The “collateral damage” to Trump’s war will be broken down cars, trucks, machinery and who knows what else. I’m sure it’s going to be inflationary!
Second source: Toyota and Nissan warning about oil too?
https://www.thedrive.com/news/second-automaker-sounds-alarm-over-dwindling-motor-oil-stock
I work late into the night searching for profits guys!
We all seem a bit anxious about the coming events; for some clear thoughts on the near term, rest of this year into the next, by someone who seems to be clear thinking, have a look at the link.
David Rosenberg: This Remains One of the Most Expensive Stock Markets on Record
what do you all think about: Congress Introduces Bill to Permanently Block Chinese Vehicles from U.S.
https://www.caranddriver.com/news/a71293972/congress-introduces-bill-chinese-cars-ban/
Some politician was on TV complaining that he is seeing BYD cars all over Europe, Latin America and Asia. BYD has already won, there are those that accept reality and then there are republicans.
It’s like watching people try to hang on to whale oil while everyone is installing solar panels.
Fed Interest Rate Policy Uncertainty Has Been Volatile. What’s that Mean?
NOTHING
*until it does, which means, nothing has changed…..
Do not be poor…..
On Friday
US 10year bond 4.597% (+0.138)
Nasdaq 26.225.145 (- 410) -1.54%
Trump said – ( on coming Sunday )
US and China agreed to open Hormuz
Ceasefire is intact. No more shooting in Strait and Gulf.
US blockage is relaxed and ships are crossing.
Iran negotiators announced they agreed to open.
US and Iran are preparing for final agreement.
Further oil reserve is released.
Hey this time it’s different.
We’ll get peace finally.
Future advice cause everything if going downhill.
When you run out of toilet paper you have the cardboard roll left made from compressed paper.
Simply lightly wet that roll and gently separate the layers.
Someday you will recall then relate the wisdom of this comment and your kids will ask what toilet paper was.
How do you sell higher interest rates to voters?
Maga voters are losing their farms, next it will be their houses and cars.
Maybe that will be the cure for the incredible stupidity of those who supported Trump.
I wonder if those Trump 2024 stickers are hard to wash off.
When a MAGA farmer loses their farm, they also lose their home and toy storage buildings.
My local bank has repossessed several “Rolling Coal” pickups… One of them sported a “Fuck Democrats” back window and two Trump flags.
At some point the fed will resort to interest rate suppression like they did post WW2. The question is at what point? This will resort in more inflation, and thats probably the goal to pay down debt in devalued currency. Something to look forward to. It worked as the national debt did go down but at what cost to the peons.
We have seen nothing yet based on what is likely to happen with taco’s lackey in charge.
Doves and HawksWhat U.S. Fed policymakers are saying about interest rates
https://www.reuters.com/graphics/USA-ECONOMY/FED/gdpzajoegvw/
Always talking.