Pressure Cooker

Pressure Cooker

"You're not leaving much time to sort of look at each monthly release," Charles Evans said Tuesday. He was referring to the Fed's 75bps rate-hike cadence, which, according to the September dot plot anyway, will almost surely continue at November's gathering. "There are lags in monetary policy and we have moved expeditiously," he added. Evans was speaking to CNBC. Asked whether he was concerned about the prospect that the Fed isn't waiting long enough to assess the impact of rate hikes on econo
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11 thoughts on “Pressure Cooker

  1. Maybe the Fed needs to hike more, but hiking as fast as they are doing is a foolish risk. I personally think they should stop, but it’s crystal clear they should at least slow down.

  2. Thanks for the graphic on oil priced in pounds. As you’ve reminded us, this is not a good old fashioned EMG crisis.

    Anxiously awaiting Jim Bullard’s wise take on the crisis. ;

  3. When some of us were studying economics, the models we were taught assumed a closed economy. With little or no recognition of global capital and trade flows. (Exhibit One was the Laffer Curve.) Unless the Ivory Tower Fed governors and staff have taken some refresher courses and updated their sacred models. they will have to be dragged kicking & screaming to do anything about the crisis they party triggered.

    1. I go back a bit farther. Had my first econ course in 1962 and the GNP at the time was ~450bil (imagine) and total US trade was less than the statistical error term in the total. We actually were a closed economy in those days. The largest exporter in the US was CAT and they didn’t hit half a bil.

  4. The Fed has now tried the two poles of acting dovish (25 bp increases) and talking dovish (2.75% terminal) to acting hawkish (75 bp increases) and talking hawkish (4.75% terminal, unemployment increase) in just 6 months time. Both have roiled the markets and neither has accomplished what they intended. In between, there is a yawning middle ground of acting a little more dovish while continuing to talk hawkish, including raising the possibility of inter-meeting hikes. And whatever they do, a lot less talk would also be constructive, as you’ve emphasized repeatedly.

  5. The Fed would be foolish and lose its remaining credibility if it backed off. Demand destruction is needed throughout the world, not just in the US. This will cause lots of pain but brief, intense pain is better than lingering pain. Have investors capitulated? No. Have prices of houses declined significantly? No. Why should ordinary workers settle for low wage increases when corporations raise prices significantly?

    1. I’m not sure you caught the gist of this article. The Fed cannot allow reserve currency countries to implode. Period. If the UK is forced into some kind of IMF program, and the euro ends up in a crisis and Japan is forced to crash out of YCC, what do you imagine that’s going to be like for global markets? And what do you reckon the fallout from that would be for Main Street? Not good. The UK isn’t Turkey. We can’t just let it go and chuckle, or we’ll be chuckling our way down to SPX 1,500.

      1. I do not know the currency markets, or their workings. But I do know that confidence in the pound has importance relative to the US dollar at the moment. Yesterday I had the idea that any action by the US to show of support for the pound, verbally and/or symbolically, even to merely imply that the US backs the UK and the pound, would be a meaningful statement. There would have to be some form of action behind such a proclamation. But by itself, the mere idea of the Fed working with authorities in the UK and the Eurozone would imply a collective desire to influence and stabilize the currencies.

  6. With Brexit, Liz Truss (and her “budget”), the potential of breaking the Northern Ireland protocol, etc., I doubt that the Fed can keep the UK out of some kind of IMF program and maintain any kind of credibility. The UK has truly and completely compromised itself. The Fed cannot provide natural gas to the EU; Germany may have to partially suspend industrial operations if Europe has a hard winter. If I might rewrite your comment, “The Fed cannot prevent (other) reserve currency countries from imploding.” What can the Fed do if Putin uses nukes on Kyiv and what would the euro do in this case? Would you propose (essentially unlimited) central bank liquidity swaps? Jawboning? Letting Buffet buy the UK?

    Could the UK, the EU, Japan, etc. help themselves? Possibly. The UK could dump the Tories and form a unity government, immediately apply to rejoin the EU, eliminate the proposed tax cuts, have the BOE raise rates now, etc. The EU governments could begin restricting industries, provide income support (e.g. Kurzarbeit) for workers, accelerate the construction of LNG facilities, etc. Japan could eliminate YCC. In each of these cases, the Fed could assist these countries after they have taken constructive steps.

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