Inflationists are cheering the rise in lending growth as it appears to be a sign of reflation and economic growth as we head into the new year. With the Fed rapidly tapering its balance sheet, a rise in lending growth is providing validation that inflation is here to stay and that perhaps the economy is … Read more
On December 15, Federal Open Market Committee Chairman Jerome Powell announced a doubling of its balance sheet taper. While this decision was largely anticipated by the markets, as Powell recently testified before Congress the FOMC would likely end its balance sheet taper a few months early, Powell seemed a bit nervous. The Fed Chair has … Read more
Most investors believe when the Federal Reserve tapers its balance sheet that it means interest rates are going to rise. Yet, something peculiar happens when the Fed reduces its monetary support for the economy as interest rates tend to fall. At the end of Quantitative Easing 3 in 2014 and later in 2017, interest rates … Read more
Retail investors continue to eagerly buy every dip or decline in stocks in hopes that stock prices will soon make new all-time highs. While they are throwing money at stocks, they cannot see the warning signs that financial conditions are tightening. When financial conditions become too tight, risk assets tend to crash. Investors are willfully … Read more
Last week the Fed was handed an unexpected gift as first-time jobless claims fell to the lowest level since 1969 which gives the Federal Reserve the green light to continue tapering its $120 billion monthly purchases of U.S. Treasury and Mortgage-Backed Securities. Given the Fed’s dual mandate of maximum employment and stable prices, low unemployment … Read more
Recently President Biden and President Xi held a virtual summit where they discussed the possibility of a joint release of crude oil from their respective country’s Strategic Petroleum Reserves in hopes to ease inflation. With inflationary effects already likely to ease, the simultaneous tapping of reserves could cause financial conditions to tighten and equity prices … Read more
Most people do not realize the expansion and contraction of the Federal Reserve’s balance sheet are designed to keep global trade running smoothly. The popular view, which is supported by the Fed, is that monetary policy can promote price stability, maximum employment, and moderate long-term interest rates. Few realize how the Fed moderates long-term interest … Read more
Investors betting on higher inflation and a weaker dollar are about to be very wrong. Money poured into risk assets on the assumption that the Federal Reserve is printing money through its Quantitative Easing program, which could not be further from the truth. The dollar is about to shoot higher, and investors are completely unprepared … Read more
On Wednesday, the Federal Open Market Committee indicated the economy had met the committee’s targets to begin reducing the pace of its U.S. Treasury and Mortgage-Backed Security purchases by $15 billion per month. While history has shown that Treasury yields fall while the Fed is engaged in a balance sheet taper, the market initially reacted … Read more
The Federal Open Market Committee is widely expected to announce a balance sheet taper timeline on November 3rd after their two-day meeting. Bond investors are suddenly nervous as the Fed has been putting an artificial floor under the bond market. Oddly, Treasury yields seem to fall, rather considerably, when the Fed is tapering its balance … Read more