A ‘Brutal,’ ‘Pick Your Poison’ Moment
The market knows.
Traders are wise to the unenviable task confronting monetary policymakers, who, lacking the capacity to address the myriad supply side factors largely responsible for the overshoot in headline inflation, are left to bleed demand until price pressures abate.
"Hence recession gap-risk repricing hard and fast," Nomura's Charlie McElligott said Thursday, pointing to "destruction" across commodities and breakevens, as well as widening credit spreads.
It's notable that 10-year bre
The Fed has chosen to be aggressive for now. There would be nothing wrong with a 50 bps point hike and then a pause or a 25 if the inflation clearly was decelerating. In other words, this is not a binary decision for them. They can throw the hawks one more large hike and then go slow if they choose should disinflation become obvious. And this is not a “cave”, it is smart policy making.
There’s virtually no chance of 50bps in July. 75 at next month’s meeting is a foregone conclusion. The gap between the July meeting and the September meeting is too large to allow for any kind of conciliatory stance. Doing anything other than the maximum next month leaves them exposed in the inter-meeting period with no options (short of an emergency meeting) if the inflation situation deteriorates. They’ll hike 75bps next month to cover their bases. There’s no downside to another 75bps increment. It’s well socialized. There’s plenty of downside to a 50bps increment, including and especially the possibility that stocks would take it as a green light to rally, easing financial conditions at cross purposes with their agenda. They won’t risk it.
I think that’s what RIA meant. He/she would be okay with 50 bps and seeing what happens but a 75 bps next month to appease the hawks and then going slow is perfectly acceptable too.
The biggest downside is having to pause in September or even cut rates shortly thereafter. They clearly have slowed things down. And they have said 50 or 75…This has the feel of the titanic picking up speed going into the iceberg flows. These decisions are not binary. If inflation stays high they can keep raising rates at the next meeting. Overconfidence is foolish…
+1
75 bps at July meeting, something will clearly break between then and September, when we’ll find out if the Fed is still a paper tiger or if the committee decides a recession + a Trump return is a fair price to pay to ensure inflation expectations remain anchored, pick your poison indeed.
You may get DeSantis but trump is finished…
I really hope you are right and Trump is finished, but to me it seems more likely than not he is the GOP nominee and returns to the WH, we might need a miracle bigger than the one needed for the Fed to achieve a soft landing
The fact that Trump as the nominee still being discussed is astonishing to me. The damage he did in four years is just now being felt!
He is a disaster. Period.
What will be interesting to see (although very depressing in a broader sense) is if Trump still has enough fanatics to pull off the nomination (only needs a plurality), and if he doesn’t, does he turn his “rigged election” guns on Desantis and the Republican party? As we’ve seen, Republicans will almost uniformly fall in line, but Democrats only hope in the 2024 election is that Trump is petty enough (and he most definitely is) to tell his voters to stay home.