Tag: Federal Reserve

Fed Jawbones Mean Business

Posted on by Gary Tanashian

3 month T-bill yield is demanding the Fed raise the Funds rate

And the Fed is listening.

Yesterday I made a sarcasm-tinged post about the parade of Fed jawbones in the media and the coordinated and thus comical desperation they seem to exhibit. The stern message is that the Fed Funds rate could be raised at any time (which is possible even before the next FOMC meeting on March 16, in my opinion).

I would not advise you to listen to those who think they know what the Fed is thinking and insist that the Fed will not dare raise the Funds rate. They will dare and they will do it, barring any significant short-term changes to the current macro. In my experience, the Fed has done what the bond market tells it to do almost without exception. Ben Bernanke held ZIRP for a deplorably long time but that was because the T bill on the chart below allowed him to. Continue reading "Fed Jawbones Mean Business" →

A Cynical Fed Is A Dangerous Fed

Posted on by Gary Tanashian

A stroll through recent and not so recent inflationary history. On ‘Fed minutes Wednesday’ the media amplified the noise, the machines are doing what the machines do and running with it, and it’s all eyes on the great and powerful Fed (of Oz).

The Fed created the cyclical inflation (in NFTRH we detailed and managed the process successfully in real-time) and thus the Fed created the cycle. In 2021 the Fed was exposed to the public as the agent of inflation it actually is, and when the inflation threatened to get out of hand they went into damage control mode. Now the Fed is trying to cool the inflation, which means cooling the cycle itself. You can’t have your inflated cake and eat it too. Not when the racket is exposed to the public.

Okay now, that second to last line triggered a memory and sent me to YouTube. Now I have distracted myself with a good laugh.

Moe: “Now look what you did; you deflated it!”

Larry: “Hey, we better blow it up again!”

Moe: “Give it the gas. Larry: “Gas on”. Moe: “Gas on”…. “Gas off!”. Larry: “Gas off”. Moe: “That oughtta be enough…”

Man blows out the candles and BOOM!!!! Classic, and so appropriate. Continue reading "A Cynical Fed Is A Dangerous Fed" →

Yield Curve Is Not Currently An Inflationist's Friend

Posted on by Gary Tanashian

The yield curve is flattening. I don’t cheer-lead a given view, but if I were to do that I’d be cheering for a yield curve flattener to put a correction to inflationist dogmatists quoting von Mises to the herds and otherwise sloganeering about inflation and a “commodity super cycle” (that term is pure promo).

Well, the curve is flattening.

Which means one of three things. Continue reading "Yield Curve Is Not Currently An Inflationist's Friend" →

What To Expect From Powell 2.0

Posted on by George Yacik

By renominating Jerome Powell as Federal Reserve chair over Fed governor Lael Brainard, whom he nominated to be Vice-Chair, President Biden has supposedly chosen the safer and less political route. But rest assured that in Powell's second term, which requires Senate confirmation, likely to be a slam dunk, the Fed will be involved in politics like never before.

That's because Biden has several other seats to fill on the seven-member Fed board of governors, and the composition and thinking of that board promises to be a lot different than the current roster, even if it has the same chair. It will likely move more aggressively to implement the current administration's progressive policies.

Indeed, while Biden may have chosen Powell to serve another term, it will likely be Sen. Elizabeth Warren and her acolytes who will have the biggest influence on Fed policy in the years to come.

The most important seat other than the top two is likely to be that of the vice chair for supervision, currently held by Randal Quarles, who said he plans to resign from the Fed board by the end of the year. If Sen. Warren and her allies have their way, that position will go to someone who will further the left's agenda to impose and enforce stricter regulations on banks, including climate change policies. Continue reading "What To Expect From Powell 2.0" →

What's Next For The Fed?

Posted on by George Yacik

Now that the Federal Reserve has formally announced its taper plans, what can we expect next?

The Taper

First of all, let’s not go into panic mode because the Fed is suddenly reducing its asset purchases. In the statement following its November 2-3 meeting, the Fed said it would “begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities.” In the scheme of Fed purchases, that’s practically nothing, you won’t even feel it. Indeed, in the very next sentence, the Fed also announced the converse of that, namely that starting this month, it “will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage-backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month.”

Note the operative word, Increase. So yes, it’s accurate to say that the Fed is reducing its asset purchases, but it’s not going away, far from it. It’s still buying a ton of securities. Remember that the Fed’s balance sheet currently totals $8.5 trillion and still growing. Now, the Fed did add that “it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook,” which most market participants take to mean that the Fed is more likely to speed up, not slow down, the pace of purchases, given the current robust state of the economy. That’s a good thing and long overdue. Continue reading "What's Next For The Fed?" →