The Fed may focus on reduced growth in household and corporate borrowings, while disregarding the paramount issue: ongoing booms in repo, money fund, broker/dealer, and ROW holdings. Resulting extraordinary liquidity excesses are fueling late-cycle speculative melt-up dynamics in equities, corporate Credit, crypto and the like.
“Terminal Phase Excess” dynamics create great analytical and policy dilemmas. It’s likely that the Fed will be viewed as having waited too long to begin easing policy.
Powell and FOMC’s thinking has gone through quite an evolution. Over recent months, the notion of “immaculate disinflation” has supplanted traditional analysis.
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Another year of a transformative bond bear market?
It seems like the market this week was infected with a touch of reality.
It’s incredible what a mess central bankers have made of things.
If 500 bps of Fed rate hikes (and $600bn of QT) haven’t meaningfully tightened financial conditions, slowed demand or reined in inflation, what might it take to get the job done?
with flows gravitating to the perceived safety of money funds during risk averse market backdrops, the money market fund complex becomes a powerful mechanism for system Credit and liquidity expansion.
It’s not a close call. If the Fed “Skips” policy tightening at the June 14th FOMC meeting, it will be yet another big policy mistake. The long string of errors has greatly damaged the Federal Reserve’s inflation-fighting credibility. It has also pro…