How would I know? I’m an ignoramus on these matters. Here’s what Tom Luongo says—I’m sure he’ll weigh in at more length soon. What follows is to spur thinking: And now here’s an unroll of Jim Bianco’s thread. Anyone with an opinion, let me know what you think. One thing I’m convinced of—what’s going on with the Fed and Congress and the War is existentially important for America as we have known it:
NIce thread from Bianco but it is the Wolfstreet post that really does a great job explaining the weird looking chart. Luongo is just pointing out that there is no reason associated with this chart that would lead the Fed to have to stop QT.
I find the whole Fed Funds rate drama kind of funny - in a perverse way. We have long been in a situation where the markets are driven more by speculation around the Fed's raising and lowering of rates than by anything else. There is little acknowledgement that the other way to fight inflation is by QT - it is almost like a backdoor, subterfuge way of the Fed doing it because it flies under the notice of much of the financial press now.
My theory is that Powell felt comfortable with the 25bps raise this time because of the additional effect of the ongoing QT; that some members of the Fed (perhaps Brainard, for example) were not comfortable with the shock to the markets that a 50bps raise would have had (the Fed seeing itself primarily as a moderating influence); and that more raises can be done in the future. The markets, of course, are doing their own thing and not considering the possibility of any pain whatsoever - they still expect a pivot in June. And so it goes...
In the 1930s a brilliant economist, Lord Keynes, came up with deficit spending as the only way to jump-start the economy in a Depression. With prosperity and a booming stock market our deficit should have been erased entirely. Keynes is no longer alive to see how his ideas have been perverted to the point that we run deficits in good times. We who are alive will suffer the consequences.
Follow the money. See if Hunter is cashing in somehow.
Next look at the worst thing that could happen. Note that, and create a list from the worst down to what they are saying what the reason is for their actions. Expect and look for what damage they are attempting while saying the overt reason is.
They're will be something that you will find. Recognize that everything is different and much input is coming from international players, and if the desire is not to make money, then it's to create chaos, damage, publicity and opportunity for foreign players. A good example is the withdrawal from Afghanistan, the end results, the stated results, and the various "mistakes" that were made. Look for similar actions performed via the overt reason for action. Basically it comes down to treachery against the US for foreign interests using our "elected" "leaders"
Jim Bianco, per usual, has it right, IMO. I like Tom, but I believe JPow is saving his ammo, lest something break, all of a sudden like.
Th ReverseRepo staying over $2 Trillion (with 100 participants) means that the leverage in the system, a la crypto, still needs to come out of the capital markets. BlackStone's little leveraged REIT withdrawal requests is a great example of the need for cash on the Street.
Based on the elevated pricing of energy (the less expensive fossil sources in [politically-imposed] constraint = higher demand for other sources), knock-on effect of high fertilzer prices --> higher food prices, inflation is unlikely to return to 2019 levels. The Ukraine war and covid/China disturbances add to the volatility of the situation.
NIce thread from Bianco but it is the Wolfstreet post that really does a great job explaining the weird looking chart. Luongo is just pointing out that there is no reason associated with this chart that would lead the Fed to have to stop QT.
I find the whole Fed Funds rate drama kind of funny - in a perverse way. We have long been in a situation where the markets are driven more by speculation around the Fed's raising and lowering of rates than by anything else. There is little acknowledgement that the other way to fight inflation is by QT - it is almost like a backdoor, subterfuge way of the Fed doing it because it flies under the notice of much of the financial press now.
My theory is that Powell felt comfortable with the 25bps raise this time because of the additional effect of the ongoing QT; that some members of the Fed (perhaps Brainard, for example) were not comfortable with the shock to the markets that a 50bps raise would have had (the Fed seeing itself primarily as a moderating influence); and that more raises can be done in the future. The markets, of course, are doing their own thing and not considering the possibility of any pain whatsoever - they still expect a pivot in June. And so it goes...
Thanks for the interesting post, Mark.
And thanks for the explanation.
In the 1930s a brilliant economist, Lord Keynes, came up with deficit spending as the only way to jump-start the economy in a Depression. With prosperity and a booming stock market our deficit should have been erased entirely. Keynes is no longer alive to see how his ideas have been perverted to the point that we run deficits in good times. We who are alive will suffer the consequences.
Follow the money. See if Hunter is cashing in somehow.
Next look at the worst thing that could happen. Note that, and create a list from the worst down to what they are saying what the reason is for their actions. Expect and look for what damage they are attempting while saying the overt reason is.
They're will be something that you will find. Recognize that everything is different and much input is coming from international players, and if the desire is not to make money, then it's to create chaos, damage, publicity and opportunity for foreign players. A good example is the withdrawal from Afghanistan, the end results, the stated results, and the various "mistakes" that were made. Look for similar actions performed via the overt reason for action. Basically it comes down to treachery against the US for foreign interests using our "elected" "leaders"
Jim Bianco, per usual, has it right, IMO. I like Tom, but I believe JPow is saving his ammo, lest something break, all of a sudden like.
Th ReverseRepo staying over $2 Trillion (with 100 participants) means that the leverage in the system, a la crypto, still needs to come out of the capital markets. BlackStone's little leveraged REIT withdrawal requests is a great example of the need for cash on the Street.
"I believe JPow is saving his ammo, lest something break, all of a sudden like."
In times like these that sounds smart.
Swag
The only thing that changed recently is China opening up.
Perhaps Powell is hoping China will go back to its historical deflationary role?
And the supply chain, with China fully open, will get unkinked and will lower inflation?
Based on the elevated pricing of energy (the less expensive fossil sources in [politically-imposed] constraint = higher demand for other sources), knock-on effect of high fertilzer prices --> higher food prices, inflation is unlikely to return to 2019 levels. The Ukraine war and covid/China disturbances add to the volatility of the situation.
100% agree with you on energy costs.
Based on the actual rate of inflation we are still in real terms negative interest rate territory.
Or is the Fed sending a message on the debt ceiling?
Another swag - Perhaps the Fed is seeing several bubbles deflating, and down trying for a soft landing?
The continued labor shortage is a factor.
https://vigilantfox.substack.com/p/smoking-gun-disability-data-reveals
Capital Markets and the banking system convulsions would prove that it's not that simple. Ask anyone from IBJ about that.
Very interesting.