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…
The bottom line: Global financial conditions remain loose. This has been good news so far for risk assets; not so much for containing inflation.
Bonds and stocks rallied immediately on the release of CPI data, with television analysts scurrying to try to explain the spirited bullish market reaction. The explanation was in market positioning, rather than in data minutia.
For years, we’ve been told the banking system is sound and highly-capitalized – that lessons were learned from the 2008 crisis. Importantly, the Fed would lean on “macro-prudential” measures (i.e., regulation) to safeguard financial stability. Our system last month suffered two of the three largest bank failures in U.S. history.
I worry about China’s “Plan B”. Beijing is clearly preparing its military and people for confrontation with the U.S., a conflict I fear will be increasingly likely when China’s economic gambit falters.
With bank lending tightening, it seems prudent for the Fed to hit the pause button. The problem is that markets eagerly anticipate the day the Fed backpedals from its inflation fight at the first sign of instability.
A Bubble maintaining an inflationary bias will demonstrate a powerful response to stimulus. Importantly, however, as this same bubble deflates, it will develop increasing resistance to stimulus measures.