Inflation will stop when the Fed reduces access to credit. I don’t see them doing that. On the other hand, the FHFA just raised the yoy conforming loan threshold by 18%. That is pedal to the metal inflationary, in practice.
LawrenceBird
2 years ago
The flattening of the ED implied forward libor curve suggests that is the time the Fed will be done with hikes and could go the other way. It does not in any way imply that there will be no hikes before then.
RonJ
2 years ago
“I remain unconvinced the Fed will get in any rate hikes at all.”
The dot plot- thins.
Tony Bennett
2 years ago
“Stop me if you’ve heard this before: dollar up for reasons no one can explain; yield curve flattening dramatically resisting the BOND ROUT!!! everyone has said is inevitable;”
…
Well, nothing that I haven’t been saying all along — 10 yr yield will flirt with going negative and $US will surge.
Treasuries will benefit from global liquidity seeking safe haven (plus Federal Reserve likely will panic).
$US will benefit when EM start to devalue their currency as global economy skids to stop + $trillions in foreign debt priced in $US and there will be a scramble for dollars to service.
Hmm A strong dollar as a variable as is covid(transitory?) . Interesting . Turkey’s currency is moribund. The travel/tourist/tariff restrictions have left many countries dollar short. The feds are caught in a trap ,can’t look back > que the music
whirlaway
2 years ago
Rate CUTS? You mean, going negative on short-term rates? Or, bigger QEs?
KidHorn
2 years ago
The FED will keep doing what they always do. Say they’re going to stop QE and start raising rates and never actually do it. If they ever stop QE and normalize rates, there will soon follow a government default. The government can barely stay afloat with the FED buying $60b in T-bills every month and interest rates near zero. How can they possibly stay afloat without FED purchases and having to pay 4% interest?
AWC
2 years ago
Looks like Lacy Hunt and Steve van Mitre are going to enjoy their day in the spotlight soon? Oh, well,,,,I chewed the sweet out of the oil, and parked in the TIPS,,,,,and now I guess I’ll head for the CD’s and turn all this off and go fishin’. 😉
njbr
2 years ago
Market mover???
link to medrxiv.org: Population-level evidence suggests that the Omicron variant is associated with substantial ability to evade immunity from prior infection. In contrast, there is no population-wide epidemiological evidence of immune escape associated with the Beta or Delta variants. This finding has important implications for public health planning, particularly in countries like South Africa with high rates of immunity from prior infection.
I feel very lucky. Two time covid survivor. If the new battle bot variant turns out to be more infectious but less virulent it will cause testing to have less efficacy. All doctor talk for testing will become useless, everyone will have to be quarantined whether they need to or not. The resistance will not tolerate this.
They can’t tolerate somebody getting a parking spot they had their eye on. They’ll shriek and riot about something else if covid goes away. Tantrums are now a way of life for the 30%.
Jmurr
2 years ago
I think you are correct. It’s been what 2 quarters since the last 2 trillion stimulus. The economy is so loaded with debt that real growth is not in the cards.
dtj
2 years ago
Deflation of the U.S. dollar won’t happen because of something called a printing press.
There are not printing press solutions. Most dollars are added digits in a ledger. Everywhere I go I see coin shortage notices. Also I do not get many brand new Benjamin’s or Jackson’s out of the ATM, Withdrawals or Change. Even during the Great Recession I did not see tons of new currency, mostly added digits
Scooot
2 years ago
Your talking about 3 month rates 3 to 5 years out of around 1.6%. I don’t think these are a very good gauge of near term inflation expectations.
For the time being the yield curve is flat for 3 months and still positive out to 20 years.
My guess is any abnormal variation in these that far out is due to some sort of arbitrage with something.
Captain Ahab
2 years ago
If the economy is showing early signs of slowing down, or it is expected to slow down in the imminent future, might not reduced demand induce lower prices? Similarly, would demand for loans slow, inducing lower interest rates. The other question is what is affecting portions of the yield curve. those long-dated bonds are a real problem at low rates.
Based on past behavior, the Fed will continue its asinine polices to contrive growth.
Which is why we have supply chain issues-so producers can create a fake supply squeeze and keep prices high). FED is desperately worried about 1930’s price crashes in commodities,agriculture and of course asset values(which will create a wave of defaults across the board.) If prices are not moving up, and you borrowed dollars for it GOODNIGHT IRENE
Much lower than 1.7(odd) percent would be negative. This is not a hill, it’s a volcano that defies reason, and is doomed to failure. Simple time value of money theory demonstrates this as rates approach zero. Much higher is a bigger problem, because of the corresponding drop in price. The Fed and its banks can’t afford that kind of drop.
“Much lower than 1.7(odd) percent would be negative.”
…
So? Very soon folks will be worried about return OF capital rather than return ON capital. An individual can hide in cash, but not major corporations. Total amount of printed currency in circulation slightly more than $2 trillion … a drop in the bucket. Major players need to find a digital home and Treasuries will be deemed Least Bad Option. Negative yield not necessarily a bad thing for investors. Assets priced in $US will benefit from coming strength in $US. A minimal loss in interest more than offset by currency gain.
shamrock
2 years ago
Can you take any market signals from the bond market given that the FED controls what, 50% of it?
I did see that. Thanks for the better explanation of what it really means.
My take, fwiw , is that you CAN’T get from where we are NOW, inflation-wise….. to a condition of deflation….. without one or more of our several bubbles popping. No way, no how. There is simply no orderly path to that, at all.
So the Eurodollar futures are betting on a crash. Maybe we get one. If so, the NASDAQ tech sector would get my vote for the one to pop first.
I think the first to blow up will be the massively inflated car prices (both new and used) that have gone on over the past year.
People are suddenly going to find their cars thousands (if not tens of thousands) of dollars underwater and impossible to trade in. It’s going to be a blood bath.
Lots of other similar worthless assets like sports cards/collectibles, NFT’s, art etc. Those also will blow up but because they aren’t priced daily like bitcoin/stocks etc you won’t read about it but there will be plenty of bag holders there too that will have an even harder time selling that crypto owners.
Sometimes. But what happens in many cases (at beginning of melt down) is investors sell “winners” to meet margin calls elsewhere. They think the tide will turn bullish again. Selling “crap” locks in loss which investors abhor. When downturn turns out to be more than dip is when liquidation generally occurs.
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My bias is heavily against it and I want it to blow up for no other reason than “I told you so!”
Of course, if I could go back I’d have bought into it 5 years ago. haha (But I’ve have sold it long ago).
I am 99% certain the bubble will pop one day. I may or may not be dead 100 years before it happens though.