The interest-rate market has a dirty secret, which practitioners call “the hairy chart”. Its main body is the Federal Reserve’s policy rate, plotted as a thick line against time on the x-axis. Branching out from this trunk are hairs: fainter lines showing the future path for interest rates that the market, in aggregate, expects at each moment in time. The chart leaves you with two thoughts. The first is that someone has asked a mathematician to draw a sea monster. The second is that the collective wisdom of some of the world’s most sophisticated investors and traders is absolutely dreadful at predicting where interest rates will go.
