The first question Jerome Powell took during this week's post-FOMC press conference related to the recent easing in financial conditions, and the potential for higher stocks and lower bond yields to undercut the Fed's inflation-fighting efforts. Rather than seize the opportunity to scold markets for impeding policy, Powell offered a boilerplate response and suggested that irrespective of short-term oscillations, financial conditions are markedly tighter than they were prior to the onset of the
6 thoughts on “Groundhog Day”
Good one H…… The post with the second chart pretty well , when combined with the text confirms what I concluded although intuitively .. This clears it up thanks …again
I saw today that mortgages rates broke through the 6% level and are headed down to 5% unless conditions tighten again. Did Punxsutawney Phil see early signs of Spring for housing prices today?
My sense is that the BBG FCI index is sort of a measure of investor fear. The components are described here https://www.bentinpartners.ch/financial-conditions and consist of various spreads between risky and risk-free rates, option implied volatility indicies, and stock index level. When investors are afraid, spreads widen, implied volatility rises, stocks fall. When investors are UNafraid, the reverse happens.
As far as I can tell, the BBG FCI does not reflect the absolute level of borrowing costs. In principle, Treasury rates could be high and rising, and as long as spreads are narrow and vol is low, the FCI could be loose.
The Fed, on the other hand, appears focused on borrowing costs.
So I think I now better understand the gap between the Fed’s view of financial conditions and the street’s view. Yes, I may be the last person here to figure this out.
I still can’t believe this dude walked right into the worst case scenario…unless he’s playing 4D chess with the debt or Larry Fink told him he has a big problem on the balance sheet I just don’t get why he didn’t take another free verbal shot on the markets and set up a plausibly dignified opportunity to announce a pause at the next meeting. Have fun with housing costs reaccelerating. smh.
I was working an old farm house property today at the edge of town under an agreement with the lessee. A feller stops in the adjacent turning lane of a four lane street under moderate traffic and starts yelling (to beat the traffic noise) at me “hey can i buy this place”. I tried to tell him the ownership is a bank in New York City, but it didn’t work. I tried to tell him to use the appraisal district to get the contact information, that did not survive the language barrier.
Thank you for providing the ‘in the weeds’ analysis of what I’ve been perceiving about markets and tightening so far. Tech earnings are obviously telling the real story of the tightening impact which will force markets to start listening to actual data and not hopium from the Fed. But it does seem clear that everyone, even those not playing in the market, do not believe the Fed will continue down the tightening journey for long. The synopsis of 2023 looks very much like that of 2022 from the ‘experts’. Tightening will impact markets early but easing will lead to growth at the back half of the year. I don’t believe that 2023 prediction will prove to be any more reliable than the 2022 version did. And I agree that inflation is going to snap back higher in the spring because everyone is acting like it’s gone already, much like Covid after the first, 2nd, and 3rd waves.