No End Seen To America’s High-Stakes Inflation War
Where does it end?
That's the question now for market participants warily (and wearily) eyeing the most aggressive Fed tightening cycle in a generation.
As Deutsche Bank's Aleksandar Kocic wrote, in his latest, traders spent most of last year asking what the Fed was likely to do next, as policy struggled to catch up to accelerating inflation. "The uncertainty was concentrated around the frequency and intensity of short rate hikes [with] the anxiety reach[ing] its peak in June, when the market
I still expect we’ll have an answer for “how high?” In 2023, even if we have to wait until H2. It has been barely a year since the Fed initiated this hiking cycle, the speed and ferocity of rate hikes may not manifest in the real economy and data until mid 2023, perhaps disinflation faded or may be we need a little bit more time for the effects of policy to become clearer. I’m afraid we will know the answer to how long, not long after we know final destination for terminal, the impact of a frenetic rise in rates and the desperate effort to catch up may result in a severe shock that will surprise the Fed and markets. It is human nature to overcompensate for past mistakes, at this point I’m inclined to believe r* star has not really shifted that much, it is simply a matter of a few more months before we realize the Fed already over reacted, again…
Time would be better spent watching Trump and the others speaking at CPAC.
For one, it is clear that that the CPAC crew are ready to jettison Ukraine and go to war with China.
But, let’s just watch those dot plots, right?
I agree with the spirit of what you’re saying about the importance of geopolitics (that’s my raison d’être, after all), but if that long run median shifts up and you’re running some kind of leveraged position in rates that gets wrong-footed, you’re going to wish you’d listened a little closer to the r-star discussion.
god help us all if older, crazier trump gets the reins.
CPAC is a far-right freak show, No more representative of what the bulk of Americans believe than the Communist Party of America.
This like doesn’t jive with the bullish bond narrative…right?
What about removing forward guidance to increase risk premium. Could the fed not use volatility to achieve their desired ends while limiting the number of rate hikes necessary (maybe to the benefit of the real economy)?