Market’s Message To Fed: ‘Even One Hike Was A Mistake’

There's a "fundamental disagreement" between the Fed and markets, and it can't persist forever. That's the message from Deutsche Bank's Aleksandar Kocic who, in his latest, pointed to a total and, more importantly, very early, collapse in the spread between neutral and terminal rate proxies. Near the end of the last three cycles, the Fed typically hiked an additional 75bps after the rates converged (figure below). So, conceptually, the Fed overshot each time. Once the two rates converge, th

Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today for as little as $7/month

View subscription options

Or try one month for FREE with a trial plan

Already have an account? log in

2 thoughts on “Market’s Message To Fed: ‘Even One Hike Was A Mistake’”

This is well above my pay grade – but when “the market says” a Fed action is “a mistake”, isn’t “mistake” code for “will adversely affect asset prices and/or the economy”? We have a Fed that is trying to adversely affect asset prices and the economy. So does the Fed care if the market is saying “Danger, WIll Robinson”? Why should the Fed care what the markets will countenance – especially the equity market?

The post GFC asset-bubble economy is not sustainable, and, per Schumpeter, debt destruction on a significant scale will have to happen sooner or later to restore things to something resembling equilibrium. For the sake of my 29-year-old kids, I hope it happens sooner rather than later.

Comments are closed.