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The Fed Announces an Autopilot Strategy: How Long Can It Stick With It?

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19 comments on The Fed Announces an Autopilot Strategy: How Long Can It Stick With It?

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Fed’s Autopilot Statement 

Here is the key paragraph from the Fed’s FOMC Statement at the conclusion of its November 2-3 meeting. 

 In light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee 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. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.  

Tapering Autopilot Scheduled For 7 Months

If the tapering autopilot holds, it will take 7 months to get to $0. 

It’s important to note that tapering is not a reduction in the Fed’s balance sheet, it is a reduction in the pace in which the Fed adds to its balance sheet.

Tapering takes autopilot to June. 

At that time, the Fed allegedly is prepared to hike rates. Once again as the Fed penciled in.

Market Thoughts on Rate Hikes For June 2022

Market Thoughts on Rate Hikes For December 2022

6 Hikes? 

Please be serious. 

A Word About Transparency

Autopilot Through December 2022? 

Please be serious. 

I do not know how long the Fed can stick with its autopilot message but I am willing to bet the notions there will be no economic distortions for a year and the Fed can stick to autopilot for that long are both wrong.

This was one of the things Lacy Hunt and I agreed on in the video interviews.

Part One With Lacy Hunt Topics

  • Milton Friedman’s Famous Statement on Inflation
  • M2 Money Supply
  • Reverse Repos
  • Velocity
  • Government Spending Net Negative for the Economy
  • Debt
  • Fed Rate Hikes
  • Slowing Economy

Part Two With Lacy Hunt Topics

  • Is GDP Overstated?
  • China
  • Inflation Expectations
  • Economic Models
  • Rate Hike Expectations
  • Margaret Thatcher Quotes

Bang or a Whimper?

Lacy and I also discuss the economic endgame and things that could change his stance on treasuries. 

In case you missed Part 1, please see MishTalk TV Episode #3: Lacy Hunt Still Bullish on Treasuries

If you missed Part 2, please see MishTalk TV #4 With Lacy Hunt: Is GDP Overstated?

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Mike Shedlock

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19 Comments
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Scooot
Scooot
4 years ago
The Bank of England just left rates unchanged against all expectations. Retaining the inflationary transitory theme on the basis that subdued economy growth will deal with it. As they all act in concert to a certain degree I suspect this will be the theme going forward with the Fed. Rate hikes below market expectations and a steady taper. In other words well behind the curve. 
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KidHorn
KidHorn
4 years ago
Seeing as how our all our economic growth last quarter was due to inventory building, I don’t think it will last much beyond Christmas.
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Call_Me
Call_Me
4 years ago
They will stick with autopilot up until the situation cries out for the ‘steady hand’ of the illustrious fed to grab the wheel!
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Casual_Observer2020
Casual_Observer2020
4 years ago
The rate cuts/hikes really don’t matter given how low rates have been and will be for decades.  Does anyone seriously believe rates will ever go back up to say 3% ? 4% ? 5% ?   What matters more now is the Fed’s ability to expand the balance sheet with the few keystrokes of a computer. The debt is being monetized. We aren’t going to get a deflationary spiral like 2008 ever again. There is just too much money in the system. The Fed will never allow the system to fail the way it nearly did in 2008.
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Maximus_Minimus
Maximus_Minimus
4 years ago
This kind of forward guidance is yet another economic fraud, a signals to speculators how to time their bets. Another step down the hole from sound money.
Also guarantees that if someone takes over from Rudy Powellstein the second, will continue the same policy.
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Doug78
Doug78
4 years ago
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Captain Ahab
Captain Ahab
4 years ago
Instead of ‘The Fed Announces an Autopilot Strategy’ as the headline, how about ‘Fed Announces Congress Can Continue to Spend Without Restraint’?
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dbannist
dbannist
4 years ago
Pardon my ignorance but if the FED doesn’t buy assets (T-Bills) then who is going to buy them at 1.5%?  Obviously the government is still going to buy a ton of them, but their reduction cannot last for forever.  I’m not thinking cutting back can last long, like at all.  I willing to bet good money that in 2 years time the FED will be buying MORE of them, not fewer.
What kind of investing idiot picks up the slack on asset purchases?  This is an inflationary environment of 5-6%.  And everyone on Mish’s blog knows interest rates will never go to 5-6%.  It would be worse than Lehman and government debt would consume more than 100% of all government revenues.  Investment grades would plummet on US debt as a result.
So….this is all a huge bluff.  
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StukiMoi
StukiMoi
4 years ago
Reply to  dbannist
“Pardon my ignorance but if the FED doesn’t buy assets (T-Bills) then who is going to buy them at 1.5%?”
People who, by know, knows that The Fed will stand ready to buy as many as needed to save the theft racket system, down the road, at 1%.
There’s not one single supposed “asset,” in the entire West, which would be priced even close to what it currently is, were it not for that implicit Fed promise.
As long as there is a single dollar left to steal from productive people by debasement, in order to keep idle “asset owners” from taking any meaningful losses at all no matter how stupid and illiterate they are and behave; The Fed has demonstrated unequivocally that it stands ready and willing to do the deed. Come what may. No level of homelessness, starvation nor lack of America’s ability to competitively produce a single item of any sort whatsoever; will make them waver in their duty to ensure The Dumb and The Idle get to hang onto the illusion that they are anything but leeches; right up until the very end of America itself.
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Mish
Mish
4 years ago
Reply to  StukiMoi
And what about Japanese and European buyers facing negative yields in Japan and the Eurozone?
And what about those like Lacy Hunt who have a duration average of 20 years?
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Scooot
Scooot
4 years ago
Reply to  Mish
Have Japanese & European Central Banks ceased QE or buying large amounts of Government Debt? Are their bond markets truly floating currently? 
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KidHorn
KidHorn
4 years ago
Reply to  dbannist
The government doesn’t buy debt. It can mature and not get rolled over but they can’t buy it.
Much of the debt will be bought by primary dealers who have to buy it as a condition of being a primary dealer.
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Eddie_T
Eddie_T
4 years ago
Chairman Powell is not by any chance driving a Tesla on autopilot, I hope.
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StukiMoi
StukiMoi
4 years ago
Reply to  Eddie_T
Well…. He’s the one paying for the darned things…..
With stolen money, sure; but still…
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thimk
thimk
4 years ago
So still adding to balance sheet for another 7 months . and quite a chunk . The beat goes on.
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Tony Bennett
Tony Bennett
4 years ago
A few “increase by at least” in statement.  Talk about wiggle room.
Obviously, Jay is being “credible” (in Yellen’s eyes) and support markets No Matter What.
And in todays No Matter What department http://apartmentlist.com out with October national rent (increase) survey … up another 8/10 of % for month and 15.8% year over year.  Avg $1312.  J6p stuck paying a couple hundred extra a month in order to make the rich richer.  Yay.
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Eddie_T
Eddie_T
4 years ago
Reply to  Tony Bennett
Landlords gotta eat too, bro. I have another vacancy as of the 1st….and you can bet I’m raising the rent.
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dbannist
dbannist
4 years ago
Reply to  Eddie_T
A rental right next to mine, same square footage and everything just rented for 1350 a month.  I bought it 9 months ago and raised the rent from 950 to 1050 and thought I was lucky to get it (it was vacant when I got it).  I’m amazed that rental got 1350.  If mine got that, and it likely can once the lease is up, that would mean that I’d get 1350 a month for a home I paid 100,000 for just 9 months ago.  I’m spending 490 on financing it including all PITA costs leaving 860 for maintenance costs and profit. 

The profit on rentals around here is INSANE.  All due to people fleeing NJ. 

I hope they keep fleeing, it’s good for business here in NC.

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Maximus_Minimus
Maximus_Minimus
4 years ago
These days even birds twitter inflation from the trees, but clowns being clowns just plug their ears.
The last line is revealing: prepared to adjust the pace of purchases if warranted by changes in the economic outlook.
Cretins, you are the ones who creates the conditions.
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