Fed Rate Hike Policy Decision Matrix | Taylor Rule & Yield Transmission

Macro & Jobs Report Inputs Dual-Mandate Calibration

Wall Street Presets

Core PCE Inflation 3.4%

5.5%

Current Upper Fed Funds 5.50%

6.50%

Neutral Real Rate (r*) 1.25%

2.50%

Nonfarm Payrolls (NFP) 335k

450k

U-3 Unemployment Rate 3.8%

5.5%

Average Hourly Earnings (MoM) 0.5%

0.9%

Taylor Rule Reaction Spec: Incorporates dual-mandate weights ($1.25\times$ labor slack gap, $0.5\times$ inflation gap) anchored to $u^* = 4.2\%$ NAIRU and $\pi^* = 2.0\%$ target inflation.

Policy Rule Output & Yield Transmission Next FOMC Cycle

Taylor Rule Implied

5.85%

Target policy divergence: +35 bps

Hike Probability (+25 bps)

68.4%

Wall Street hike probability index

Labor Slack Gap (u - u*)

-0.4%

Tight labor heat vs 4.2% NAIRU

FOMC Next Rate Decision Odds Derived from reaction gap

68.4%

31.6%

Hike +25 bps: 68.4%

Pause / Hold: 31.6%

Cut -25 bps: 0.0%

Dual-Mandate Policy Coordinates Taylor Frontier

Yield Curve Shift & Spreads 2Y / 10Y Curve

Financial Transmission Impact Matrix Post-Shock Term Structure

Transmission Channel	Baseline	Shocked Yield	Net Delta
2-Year US Treasury Yield	4.94%	5.12%	+18 bps
10-Year US Treasury Yield	4.40%	4.51%	+11 bps
2Y-10Y Yield Curve Spread (Inversion)	-54 bps	-61 bps	-7 bps
Mortgage 30-Year Fixed Benchmark	7.10%	7.24%	+14 bps

Grounded in Wall Street analysis via @YahooFinance: "They're going to need to hike rates" Canonical ID: fed-rate-hike-matrix-71