Janet Yellen said something interesting this week.

“It seems unlikely that yields are going to go back to being as low as they were before the pandemic,” she told the press, while in Kentucky for what amounted to a campaign event for Joe Biden’s reelection bid.

The context was the administration’s budget, and specifically the embedded yield forecasts, which are markedly higher versus a year ago. The figure below shows the forecasted trajectory for three-month bills as well as the White House’s outlook for benchmark US yields.

As a quick aside, note that the forecasts suggest the three-month/10Y inversion will persist through 2024.

Forget whether the forecasts are likely to be accurate. They aren’t. The point is just that yields are seen higher than the pre-COVID average in virtual perpetuity.

Notably, sources who spoke to Bloomberg said Lael Brainard actually overruled Yellen during a meeting in October, when America’s two most prominent female economists apparently clashed over the 10-year projection. Brainard wanted the forecast to be 10bps lower “across three years of the forecast.” That might sound trivial (and it is in the context of forecasts that can only be right by accident, luck or both), but it’s meaningful in terms of the implications for debt servicing costs and so on.

That must’ve been a difficult discussion for Yellen. For one thing, she’s Janet Yellen. (“Lael, we’ve known each other a long time, and you know how much I admire and respect you, but I’m politely — for now — asking you to stand down.”) Ego aside, 10-year yields were in the process of making new cycle highs north of 5% at the time. And there was Brainard, apparently pushing for projections informed at least in part by Yellen’s math (or that of her subordinates) to be revised lower. Just days after that meeting, Yellen cut Treasury’s borrowing estimate and undershot market expectations for coupon increases at the quarterly refunding auctions. Go figure.

Anyway, the 2024 three-month bill forecast illustrated above is 130bps higher compared to last March’s forecast, and the 10-year 80bps. During the Kentucky remarks mentioned here at the outset, Yellen said they “reflect current market realities and the forecasts that we’re seeing in the private sector.”

Yellen surely didn’t intend to get into an r-star debate at an EV battery plant in Elizabethtown, Kentucky, but being the world’s preeminent economist, she surely knew that at least some market participants would make the connection. And they did.

“Yellen didn’t outright address the neutral rate” but her comments were “noteworthy,” JonesTrading’s Mike O’Rourke astutely pointed out in his latest, after reiterating that in his view, Fed officials are “failing to acknowledge the structural shift in the economy since the pandemic.” “In underestimating the neutral rate, the Fed is by default overestimating how restrictive monetary policy is,” he added.

O’Rourke has a penchant for biting quasi-satire, even if he doesn’t recognize his own talent in that regard. The evidence he rolls out to support his (often pointed) critiques of policy and market excess is infallibly spot-on and accompanied by what could pass for dry humor, even if he’s deadly serious. “The situation has moved beyond the market making the Fed look foolish,” he wrote, in the same March 13 note. “MicroStrategy is now single handedly making it clear there is nothing restrictive about the policy environment.”

He cited MicroStrategy’s famous (and famously amusing) affinity for financial engineering in the service of raising money to buy Bitcoin. The company indulged twice in the past month alone. “It appears convertible offerings for the specific purpose of investing the proceeds in Bitcoin [are] becoming a weekly event,” O’Rourke wrote, adding that it’s “hard to argue that this somehow represents an efficient allocation of resources.”‘