About-Face!
On Friday morning, as the latest COVID variant panic crescendoed into a mini-crash on Wall Street, I gently suggested that "this is precisely the kind of news that can get you an aggressive bull steepener in the current environment, especially to the extent positioning was set up for belly-led losses as traders bet on faster rate hikes."
Unfortunately for some, Fed officials have gone out of their way recently to socialize the idea of an accelerated taper which, efforts to "de-link" the timelin
It certainly feels like we’re passing the point of no return on tightening. If the markets continue to dictate Fed policy, there will always be a reason to remain in accommodation. One day of less than a 5% correction will impact months of monetary policy going forward for the foreseeable future.
Well said. Always a reason for FED remain accommodative…unless inflation risk devalues bonds and the dollar enough to risk damage to wealth which would force the Fed to tighten for the purpose of capital preservation. Heisenberg would make this point more eloquently, if my basic premise is fairly correct.
I would say the optics is really more that the Fed now has more leeway to do what they were already planning and nothing that happened today changed their plans. What is did change was the increasingly heavy pressure they were getting to change their plan.
I think the bond liquidity chart is huge and the most important part of driving financial assets of all types of the past 30 days. It’s all to do with the Macro Systemic Flow of Funds Magic Shell Game (or MSFFMSG). Basically it tells be large institutions were getting ready for the taper and expecting political pressure to force faster tapering. As we know, tapering removes funds from the large institutions. These institutions need to be liquid to allow this to happen while still maintaining all relevant stress test metrics. It is also why Equities have been soft for Nov despite the marginally higher high at OpEx. It is/was always the case that the Fed is unlikely to complete the taper cycle next year before it get thwarted by market volatility.
It really just all goes back to what H has laid out many times: the markets are addicted to accommodation and the unwind will not be easily done. Any chance for a soft landing is years away.
The peanut gallery was all over powell, that the taper was too slow. I want to see some of them recant. I have been saying for awhile that the virus was a risk. It is much better for the FOMC being a little late than too early. Their current approach makes a lot of sense. The latest news is a demonstration of how fragile it all is. If yhe FOMC is smart they will stick to their plan, unless of course things actually get worse.
Yes. Summers, Fox, and the rest of the hike-now brigade will look like fools by February.