Is A Treasury ‘Intervention’ Imminent?
Janet Yellen is "very focused" on Treasury market functioning.
That's according to remarks delivered on Monday at an annual SIFMA gathering. Although Yellen described the US financial system as "resilient" despite myriad "uncertainties" in a "dangerous and volatile environment," she was adamant about the necessity of safeguarding the US government bond market.
"Trading volumes are robust and investors are able to execute transactions," she said, before adopting a more cautious cadence, as foll
yes it would go long way to “calm frayed nerves” but what would it do to worsen core-cpi & easen fci
Presumably Treasury action to prevent something “breaking” in UST would give Fed more room continue raising rates – seems like a two-edged sword, so to speak. Not saying markets won’t react bullishly at first.
How does the Fed keep liquidity in the U.S. Bond market while removing liquidity from the U.S. stock and housing markets and not completely destroy the U.S. job market and foreign currencies? This is the problem, and Treasury intervention might be one answer.
Delayed effects overlooked and realizing the poor do not have real spending power, a 3.0-3.5% interest rate has not appreciably slowed U.S. consumers. Consumers are frustrated by inflation, but most still feel rich because recent valuations tell them their homes and stock portfolios will again be worth a lot. They do not understand the impact of low interest rates and Fed liquidity injections over the past many years. In any case, they are addicted to these high valuations and want them to return.
However, the Fed likely has telegraphed that prices need to come down. Independent Central Banking is under threat if they fail to bring supply and demand back into balance and control inflation. Stock and housing valuations are key to solving this. Central Bank demand destruction tools through interest rate control are effective, but are crude and will likely hurt.
We live in a Central Banking world. I think we are all fools to believe that Central Banks will ultimately ‘take it on the chin’ to preserve stock and housing market valuations. Self preservation will take precedent.