Fed Announces QT Taper, Signals No Rate Hike In 2019

Fed Announces QT Taper, Signals No Rate Hike In 2019

The March Fed meeting needs no further introduction, but we'll provide the obligatory summary just in case. 2019's "epic" dovish pivot, first tipped by Jerome Powell on January 4 in remarks delivered while seated next to his predecessors in Atlanta and subsequently echoed by his colleagues, was enshrined in the forward guidance at the January meeting, which also produced a "special" statement on balance sheet policy and opened the door to the end of runoff, an implicit concession to markets fol
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20 thoughts on “Fed Announces QT Taper, Signals No Rate Hike In 2019

  1. The, uh, intersection of politics and finance right? Okay, here is the non-Straw Man concern. The cost and availability of money is a political calculation that balances the needs of disparate groups. Savers vs. borrowers, creditors vs. debtors, importers vs. exporters, etc. Keeping rates low, keeping credit spreads low, and keeping risk assets high benefit some people…AT THE EXPENSE OF OTHER PEOPLE.

    Forgive me for being Gundlachian again, but there are two sides on this coin and one of them is being dismissed here. Low rates hurt savers, because it makes returns on cash savings low, and in real terms negative when inflation is taken into account. A maxim states that you save for retirement, and you invest to counter inflation. Money that could have more productive purposes is used to chase yield instead. Inflows of cheaper money keep companies afloat that would otherwise go bankrupt and liquidate valuable assets. Start ups that could have been created from accumulated savings cannot be because of too many zombie competitors. The concern is that reduces overall competitiveness and locks in first mover advantages.

    We have seen this movie before. The balance sheets of Europe and Japan are growing ever larger, while the purchasing power of ordinary people is being eroded. If capital is being misallocated to risk assets, then bubbles emerge. When those bubbles pop, in the American context of ultra-loose monetary and fiscal policies, then either there will a great deal of pain inflicted on someone (taxpayers? investors?, pensioners?) or ever more exotic policies (MMT?, The Fed buying the dip, overshoots on inflation?, default?) have to be designed to delay the ultimate reckoning.

    Whether you are a free market capitalist or a democratic Socialist, there are political reasons to not want public money printed in order to finance a stock market that cannot stand up on its own two feet in order to try to outlaw business cycles.

  2. From October, principal repayments from agency and MBS securities will be reinvested in Treasurys “subject to a maximum of $20 billion a month.”

    -I love the smell of MMT in the morning….

      1. Micro engineering a monstrous complex adaptive system, interconnected global economic system, is like saying you can micromange a tsunami or an earthquake. Ask Japan and California how that is going. Yes, it’s all bullshit…Hence the nod to a popular movie that references apocalypse.

  3. This was a done deal 2 months ago.. I rather had expected H……..to be witty and sarcastic on this one. Possibly we should have a collective day of mourning followed by a tag day for Powell and his Fed group so as to allow them to retire securely..

  4. Same old story folks: either you want central banks to try or you don’t. if they didn’t in 2008, all the “regular” people you guys/gals are apparently so worried about would have been in soup lines, while the rich would have been just fine, relatively speaking.

    failing to mention that when you deride post-crisis monetary policy demonstrates an acute lack of understanding with regard to what was about to happen in September 2008 had it been allowed to “work itself out” or had “misallocated capital” been allowed to be “purged”.

    the saving grace is that you folks didn’t have to suffer through that and will never know how bad it actually was there for about three weeks at the end of September/early October 2008. ignorance, in this case, really is bliss.

    1. One more thing: when you read commentary from bloggers/commentators who support this demonization of post-crisis policy for the extent to which it hurt “the little guy”, maybe consider the source of that commentary. Is it really “the little guy” or “everyday Joe” writing it? Or are your reading a screed penned by someone who is themselves a millionaire masquerading as a champion for the middle class and “regular” readers?

      1. Uh…whut? Okay, I guess we are talking about 2008 now. Fine.

        There were, in real time, multiple responses to the crisis. If you are of the libertarian or right-wing stripe, you would have advocated doing nothing and allowing the markets to reprice risk, capital, and finding ways to meet short term liquidity needs because you believe in free markets. If you hew more left, you advocate using all of that money that went to bailing out companies and re-capitalizing banks – and using the Fed as the lender of last resort: A liquidity injection to Main Street businesses, mortgage holders, and people needing quick access to cash if you will. Then you allow the unwinding of busted financial firms and break up the big banks while the government provides the necessary social safety net.

        I doubt there was a democratic clamouring for government to hoover up crap assets from overleveraged financial institutions to make them whole with printed money.

        And if, If, IF you think bailing out banks too big to fail was the only solution to prevent Mad Max scenarios, why the hell would you allow those same banks to get bigger now and provide the moral backstop to allow those firms to replay the same mistakes?!?!

        1. Harvey, I like you my friend (in the same way I like and appreciate all of my long-time readers), but sometimes I think your sole purpose in commenting here is to try and agitate me with comments that all employ a similar strategy: you pop up, try to goad me into responding, use a derisive tone (ex: “Uh… whut?”), then proceed to argue both sides of an issue using what sounds like nuance, but what are usually just purposefully naive assertions.

          In this case, for instance, you’re suggesting that two options in 2008 were to i) let the financial system implode by allowing all systematically important banks to collapse at once (because according to you, that’s what those of a “libertarian or right-wing stripe advocated”, despite the fact that nobody sane of any “stripe” would have advocated that had they appreciated the gravity of the situation), or else ii) provide “a liquidity injection to Main Street businesses, mortgage holders and people needing quick access to cash”.

          On the first point, you obviously can’t just let the financial system implode because that is a criminally insane assertion, and it deserves exactly zero attention beyond calling it criminally insane.

          On the second point, how does that program work exactly? Do you poll the audience? “Hi, Joe shop owner, this is the government calling, would you be in the market for a free, one-time injection of $250,000 by any chance?”

          Or maybe “Hi, Suzy Johnson, this is the government calling. Would you say you need quick access to cash? If so, we’ll send you $100,000 tomorrow in a suitcase. And no, Suzy, it can’t be a check because all the banks are closed now, which means you won’t be able to cash it.”

          Sarcasm aside, you can send out some small checks (and they in fact did, if you remember) to try and juice consumer spending, but you can’t just mail out $700 billion to random people real fast after Wall Street is already on fire and while the plumbing of the global financial system is in the process of seizing up.

          And then on top of that silliness (which you frame as some kind of wholly realistic initiative), you very casually say the following as though you’re putting together a bookshelf with a set of instructions from Ikea or something: “Then you allow the unwinding of busted financial firms and break up the big banks while the government provides the necessary social safety net”.

          Like: “Then you simply insert screw A into hole B using the Allen wrench provided in the tool kit taped to the inside of the box.”

          With all of that said, I hope you’ll forgive me if I leave you to argue with yourself about the relative merits of these solutions you have — and when you do, make sure and add a lot of unnecessary punctuation at the end (“?!?!”) so that you can hear yourself, ok?

          1. As a fellow university-trained political scientist, I am able to see how the basic problems of scarce resource allocation are hit at from multiple ideologies, many of whivw I do not adhere to. I am not a libertarian, I am not a Republican, I do not adhere to the Austrian School, but I am aware of it. There were a lot of people who wanted the whole thing to burn, using the Depression of 1920-1 as a template. You can dismiss that option, or handwave it away, but it does still exist. It is/was a policy option.

            If you say the Central Bank does not have the logistical capability of being, you know, a bank, fine. I’ll concede the point. But there were policy prescriptions for that too. Nationalizing banks. The government could have taken over existing banks, used those lending windows and routing numbers and credit vehicles and done the same thing through them. This was done in Iceland. The model does exist.

            Every sentence I have written above justifies a paragraph to elaborate, and each paragraph a book chapter, all annotated. I am aware, but there are space limitations in this format to consider so I am giving the TL;DR version. That cannot be helped. But I am trying to help you in the way you have helped me. You live on an island andaI don’t. You have a website and I don’t. You have made me stronger with your unforgiving jargon and squiggly lines, but you have blind spots. You are the one who introduced me to David Stockman before he put up a paywall, but you summarily dismiss his ideology. You have an Establishment center-left bias that makes you ignore the wings despite your political science training. And I am sorry, but the Establishment fucked up and continues to fuck up monetary policy. Banks are bigger, incomes are stagnant. Public, private, corporate, student, all debt is through the roof. The dollar buys less home, less education, less healthcare, and too few have savings or retirement money. It is not working, and hair of the dog is not going to cut it. Left and Right each have different solutions that come with known drawbacks and require different discipline, but each is way better than current Fed policy.

          2. And I like you, too, H. Just like I like Wolf Richter and Doug Noland and David Stockman and Kevin Muir and Dave Collum and Robert Reich and Jim Cr…

          3. Kevin has a legit claim on “most likable guy on the planet” btw. David is also super-duper nice despite his seemingly irascible style. As for Cramer… let’s just say if you ever talk to him in person when the door is closed and the cameras aren’t rolling he’s, well, not entirely likable.

          4. Good debate, guys. Well worth reading. BTW, “precisely what Goldman predicted” is truly “the cart leading the horse”.

      2. I don’t have clue about have bad things will turn if the CBs didn’t chose the ultra loose policy, but its like cheating – the system is not fair, thats whats bother me the most (and this said, I am pretty sure that the wealth gap this system is creating will come back to the 1% on day, one way or the other)

  5. I really wish I had a sense of whether this shit show is going to continue and I just need to blindly invest in my company’s limited selection of mutual funds for the next 20 years. Or whether I need to cash-out and sit for a while. Maybe ignorance really is bliss like yall say.

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