Here’s the thing: Folks are fading the hell out of the “ongoing quarterly hikes” narrative which went out of style in dramatic fashion over the past three days.
After this week, nobody is buying the idea that Powell is going to manage to “connect the dots” (as it were) in 2019. Naysayers (like me) who doubted whether Clarida was actually trying to communicate a shift in the Fed’s reaction function two weeks ago (with his “close to neutral” comments to CNBC) have been proven wrong. Or at least it certainly seems that way.
Powell’s Wednesday remarks were entirely consistent with Clarida’s messaging and in case anyone needed further proof of the dovish shift, the November minutes betrayed a clear (and newfound) penchant for communicating a flexible approach going forward.
The irony is that while “data-dependence” was hawkish and entailed less transparency when the incoming data was robust, emphasizing data dependence in an environment where the data is rolling over will be dovish and, in a sense, tantamount to market-dependence. Bad news could become “good” news again, a return to the perverse state of affairs that prevailed before Powell took the reins (obviously that has its limits – if the data rolls over entirely, then credit spreads will explode wider and it’s all downhill from there).
The Fed’s dovish shift is manifesting itself in an aggressive repricing in front end rates, but if that’s not your thing, you might just have a look at … oh, I don’t know … the Invesco Variable Rate Preferred ETF, which just witnessed its largest monthly outflow since December of last year (and its second-largest monthly outflow going back to at least 2014).
That yellow line is total assets which, as you can see, have fallen off rather dramatically and now sit at their lowest in a year.
Bottom line: folks are bailing on variable/floating-rates now that the prospects for ongoing hikes have dimmed.
And if you’re wondering where that money is going, I would present the following visual and ask if you think it’s a coincidence…