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

Question of the Day: Can the Fed stick with its announced autopilot stance?
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Fed Announces Autopilot Strategy

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

Target Rate Probabilities for 2022-06 on 2021-11-03A

Market Thoughts on Rate Hikes For December 2022

Target Rate Probabilities for 2022-12 on 2021-11-03

6 Hikes? 

Please be serious. 

A Word About Transparency

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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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