Macro Policy · Core
Monetary Policy
Monetary policy is the central bank’s control of short rates, liquidity, and sometimes the balance sheet — the price of reserves and the path of the front end.
Definition
Conventional: set the policy rate. Unconventional: QE, forward guidance, YCC, negative rates. Transmission is through financial conditions, not a lever on CPI the same month.
Why it matters
Every duration book is a monetary-policy book. The lag is long and variable; the mark-to-market is not.
Case
2022 hiking cycle: policy rate from ~0 to 5%+. Housing and duration marked immediately; inflation lagged. The policy was the path, not the last print.
How to read it
Reaction function, real rate vs r*, and the balance-sheet stance. One meeting is a waypoint.
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