What factor(s) contribute to a non-zero [BEIt – (INFL_SWAP_RATE)] basis? What factor(s) is most likely to impede the FOMC’s ability to determine a reasonable gauge of inflation expectations when formulating its monetary policy strategy?

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The non-zero basis in the BEIt (Bloomberg Eurodollar Interest Rate Swap Rate) is influenced by various factors such as market liquidity, credit risk, counterparty risk and legal uncertainty. Market liquidity refers to how easily a security can be bought or sold which affects the price that investors are willing to pay for it. Credit risk measures the probability of default on a financial instrument while counterparty risk pertains to the potential that one party will not fulfill its obligations under an agreement. Lastly, legal uncertainty is associated with changes in regulations or laws that may affect certain instruments.

The most likely factor impeding the FOMC’s ability to determine a reasonable gauge of inflation expectations when formulating its monetary policy strategy would be market liquidity. This is because fluctuations in market conditions can lead to increased volatility in prices making it difficult for policymakers to accurately assess inflation trends. Other factors such as credit and counterparty risks could also have an impact since they both pose potential risks by introducing additional costs into transactions which could skew inflation readings if not accounted for properly.