Automatic Pilot Spotlight
Let’s flashback to Fed Chair Jerome Powell’s statements following the December 19 FOMC meeting.
Powell was asked about the Fed’s balance sheet and quantitative tightening.
We thought carefully about how to normalize policy and came to the view that we would effectively have the balance sheet run off on automatic pilot and use monetary policy, rate policy to adjust to incoming data. I think that has been a good decision. I think that the runoff of the balance sheet has been smooth and has served its purpose and I don’t see us changing that. And I do think that we will continue to use monetary policy, which is to say rate policy as the active tool of monetary policy.
I commented Shut Up! Shut Up!
Automatic Pilot
Automatic pilot, what a hoot.
Today, I repeat, “What a Hoot“.
The 7-year, 5-year, and 3-year notes all all about 50 basis points lower. And the yield curve is inverted in 28 places.
Yield Curve to Scale
Synopsis
- The yield curve is inverted from the 1-year note through 13 years.
- The yield curve is inverted from the 3-month T-bill through the 10-year note.
- The yield curve is inverted in 28 places.
Those who thought the recession signal was over, thought wrong.
Mike “Mish” Shedlock
We are headed for a 1/1/1 economy. 1% growth. 1% inflation costing $1T of debt per year.
I’ve been consumed with watching the economy for the past 15 years or so.
I knew something was wrong in 2007-2008, but I couldn’t have predicted the crash of 2009, which lasted many years. However, I feel that something is different now. This long, slow recovery with 2.5-3 % GDP is a whole new phenomenon. It has changed the old dynamic of recession and recovery. Now it just might be slow and steady as she goes with minimal fireworks. The stock market is a different story and has been divorced from the economy for many years. Have faith.
It has come at a cost no one sees at the Fed. There would have been a better recovery by now if not for the debt which still got papered over.
Here we go with recession flim flam. Bond buying does not portend recession. If a recession happens it will be entirely short lived in iteration 1. Iteration 2 in 2022-2023 will be the one that sneaks up . Inflation by any means, even tariffs, good for stocks, good for margins short term….just not good for market character in the long term. S+P will correct under this selling duress, maybe even 2400 / 2500. Bond buyers are not what they used to be. Institutional schmucks with a client need….not near term clarvoyance.
With the real economy mired for decades in feudalistic inflationary depression how can anybody even tell if a recession starting?
And why on earth would anyone care? Some yahoos making an arbitrary “call” about something they do their darndest to understand as little of as they can.
feudalistic inflationary depression…good one! But fear not about inverted yield, “this time is different”, “the stock market has reached a permanently high plateau”.
Since the Fed seems to ignore asset values in their inflation calcs, it can be assumed that that asset prices will always overshoot the real economy on the upside, and therefore you’ll know we’re in a recession when asset values crash, and the media panic thereafter, hence the boom/bust economy.
Agree. Asset prices will decline top to bottom by 40% during a typical recession. The problem with the next recession is the Fed has few bullets left. They can twist the yield curve and fool traders but the real economy still matters. There will be no hiding the truth of the great recession come 2020.
Who cares? Felicity Huffman is going to jail!!!!
Glad to see somebody else kept their eyes on the ball. As Q tells us all, our role is to trust the plan! All this market talk is baloney, plus it makes my head hurt. Celebrity news is far more relatable and it’s fun to think of famous people in jail when I’m free!
Now if you’ll excuse me, I have some fantasy baseball teams to manage. I need to pick up more Red Sox players, they’ve been tremendous since Trump told them how to play better!
You mean Red Socks players, right?
This is big news. How many recession signals have we had in the last 5 years?
Seems like every year has a recession signal but we have many less recessions than the signals would indicate. I’m sure one of the signals will eventually be correct – confirming the importance of the signals and the genius of those highlighted them.
Bad news sells but the truth is that we just don’t know.
Tell that to the banks who borrow short and lend long. Credit crunch coming.
In other words, if it is bad enough we’ll know the prior signals were correct and were pushed aside via fed funny business