{"id":56321,"date":"2022-02-11T11:34:05","date_gmt":"2022-02-11T16:34:05","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=56321"},"modified":"2022-02-11T11:34:05","modified_gmt":"2022-02-11T16:34:05","slug":"fed-jawbones-mean-business","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2022\/02\/fed-jawbones-mean-business\/","title":{"rendered":"Fed Jawbones Mean Business"},"content":{"rendered":"

3 month T-bill yield is demanding the Fed raise the Funds rate<\/p>\n

And the Fed is listening.<\/p>\n

Yesterday I made a sarcasm-tinged post about the\u00a0parade of Fed jawbones in the media<\/a>\u00a0and 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).<\/p>\n

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.<\/p>\n

I\u2019ve added the 3 month T-bill yield (IRX, orange) to this chart and you will notice that this short-term yield and the Fed Funds rate go pretty much in lockstep. When IRX finally rose in 2015 Bernanke\u2019s successor, Janet Yellen, promptly got in gear out of the 7-year perma-ZIRP phase.<\/p>\n

Take a look at the lower right corner of the chart. In that gap between the orange line and the black line, the Fed is exposed as being behind the curve with respect to inflation. So sure, all these media headlines about backward-looking inflation<\/a>\u00a0do represent the vast mountain of inflationary layers the Fed laid in 2020 and it\u2019s sitting there like a toxic pile of monetary sludge. Now the Fed would undertake the task of cleaning it up. And it is late getting on that task.<\/p>\n

This chart has been used previously to show that it is historically well after the Fed begins a rate hike cycle that the stock market tops out. But in this case, I want to zoom in on the orange IRX and its historically tight relationship with the funds rate.<\/p>\n

\"\"<\/a><\/p>\n

The bond market \u2013 in its long-term yields and especially short-term yields (the 2yr, green, has been demanding action since late last summer) \u2013 is demanding a rate hike now, and I don\u2019t think the Fed will find it comfortable waiting until mid-March and the next FOMC meeting. Would-be pressure relief could come from one of two sources:<\/p>\n

    \n
  1. An unexpected rate hike in the interim, or\u2026<\/li>\n
  2. A market liquidation to send the herds into the liquidity of short-term notes and bills, which would tamp down yields.<\/li>\n<\/ol>\n

    Of course, Thing 1 could be the trigger to Thing 2. So there\u2019s that too. It\u2019s a complicated set of circumstances. Don\u2019t be caught making assumptions in this market and also don\u2019t be caught following gurus recycling dogma. If the Fed is caught this far off guard, anything is possible and there\u2019s no guru alive who\u2019s got anything but guesses at hand.<\/p>\n

    Now, as to whether or not the Fed will be able to catch up to the curve in any reasonable time frame, that\u2019s another question altogether. It looks daunting, and I think the Jawbones know it.<\/p>\n

    Best,
    \n    Gary Tanashian<\/a><\/p>\n

    For \u201cbest of breed\u201d top-down analysis of all major markets, subscribe to NFTRH Pre<\/strong>mium<\/strong><\/a>, which includes an in-depth weekly\u00a0market report<\/strong>, detailed\u00a0market updates,<\/strong>\u00a0and\u00a0NFTRH+\u00a0<\/strong>dynamic updates and chart\/trade setup ideas. Subscribe by\u00a0PayPal<\/strong>\u00a0or\u00a0credit card<\/strong>\u00a0using a button on the right sidebar (if using a mobile device you may need to scroll down). Keep up to date with actionable public content at\u00a0NFTRH.com<\/a>\u00a0by using the\u00a0email form on the right sidebar<\/strong>. Follow via\u00a0Twitter<\/strong>\u00a0@NFTRHgt<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

    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\u00a0parade of Fed jawbones in the media\u00a0and the coordinated and thus comical desperation they seem to exhibit. The stern message is that the Fed Funds rate could be raised at any […]<\/p>\n","protected":false},"author":31,"featured_media":56322,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[425,511,4273,1750,9526],"class_list":["post-56321","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-fed","tag-federal-reserve","tag-gary-tanashian","tag-inflation","tag-notes-from-the-rabbit-hole-nftrh"],"yoast_head":"\nFed Jawbones Mean Business - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"I don't advise you to listen to those who think they know what the Fed is thinking and insist that the Fed will not raise the Funds rate.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2022\/02\/fed-jawbones-mean-business\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fed Jawbones Mean Business - 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