In particular, yields on high-yield corporate bonds relative to Treasury securities remain somewhat narrow on a historical basis despite recent increases. Similarly, although they have moved up in recent months, spreads on leveraged loans remain in the bottom half of their range since the financial crisis, which is notable given the evidence of weakening protections.
Monetary policy has to recognize these underlying trends and respond to them. If it looks upon these trends as pure transient supply shocks and ignores them, it runs the risk of destabilizing inflation expectations. 9. And now about the second assumption – of supply shocks not usually acting alone to stoke inflation.