Notes From Underground: “Hoist With His Own Petard”

This quote from Shakespeare explains the position that the Jerome Powell-led Federal Reserve has created for itself. The U.S. central bank has been captured by its massive monetary stimulus in addition to its willingness of aiding and abetting the Mnuchin Treasury by purchasing of hundreds of billions of Treasuries. The FED has maintained that its dual mandate provides the theoretical and practical approach to keeping interest rates lower for longer.

In January 2019, Powell pivoted away from raising interest rates while shrinking the balance sheet because of the 22% correction in the S&P 500. This pivot took place with unemployment at 3.6%. So what can the FED do with unemployment at 13.3%  and inflation at 1.3%? The virus has caused central bank policy to abandon its full employment/2% inflation mandates.

How does the FED successfully navigate monetary policy in a world struggling to understand the economic implications from a collapse in global demand? In the recent FED LISTENS video conference hosted by Lael Brainard and Powell the emphasis was on the need to regain the employment levels for the most vulnerable actors in our economic system.

The FED‘s success over the past five years has been the record low unemployment in the Black and Hispanic communities, which has historically been the last hired, first fired. It is this segment of the population that has borne the brunt of the dramatic increase in unemployment so the FED will be RETICENT to allow rates to rise and liquidity to shrink until the most vulnerable have experienced some genuine measure of being recalled to work. The INFLATION DATA will be meaningless in the near term as the recent civil disobedience has created heightened sensitivity to the great cost Covid-19 has placed upon the most recently hired.

Since the FED LISTENS event took place before the protests, the central bank may become more reticent to change course regardless of asset values or inflation. In other words, the data is meaningless. The important question is at what unemployment level does the FED declare victory and change course? Wednesday’s FOMC statement and press conference will deal with these issues. Also, look for a full blown discussion about yield curve control (YCC).

Can the central bank allow 10- or 20-year yields to move higher while keeping the overnight rate at 0-25 basis points? This will result in the MARKET taking long-term rates higher in an effort to hedge against possible rising inflation. Higher TREASURY YIELDS results in greater interest expense to the U.S. TREASURY, which will have political ramifications.

If the FED moves toward YCC going out to the 20-year point then look for the curve to flatten with negative implications for the DOLLAR but positive for commodities and precious metals. The idea of YCC may have been the impetus to the recent drop in the DOLLAR against all currencies and an aid to the EQUITY MARKET RALLY.

The FED‘s increased concerns about the political impact of elevated unemployment leaves the FOMC HOISTED ON ITS OWN PETRAD. Listen to Powell’s press conference to get a sense of HOW LONG the FED expects to sustain its present aggressive policy. This is critical for the FORWARD GUIDANCE BECAUSE THE MARKET NEEDS A SENSE OF AN EXIT STRATEGY.

In a speech on Monday, ECB President Christine Lagarde put a timeline to the pandemic emergency purchase program, which the bank boosted by 600 billion euros. It will extend purchases until at least June 2021. The market now has a sense of time. Can the FED give the market some sense in an effort to avoid being captured by market tantrums? YCC is a key criterion for the FED to extend its timeline and have zero exit strategy.

***Saying farewell for now, but seeking advice. As NOTES goes underground for a short time we are looking for other ways to reach our readers. I’m considering three or four audio conferences a week at a designated time — morning or noon — in doing interactive discussions about relevant trading and investment topics.

If you have ideas please contact either Whitewave, Pax, or Richard Bonugli at FRA about suggestions. I hope they will post their contact information in the comments section. If you find this BLOG hopeful let’s try to keep it going in its full purpose. Thank you for all of your support.

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17 Responses to “Notes From Underground: “Hoist With His Own Petard””

  1. tom m Says:

    Whatever format you decide is best for you…I’m in. Newsletter, audio conference, blog-post etc…..tom m

  2. Financial Repression Authority Says:

    […] LINK HERE to the Article […]

  3. Leslie Philipp Says:

    Always enjoy your perspective Mr. Harris. I will take it however you are able to share.

    Thank you.

    Leslie Philipp

  4. Cedargold - FRA Says:

    Notes from Underground – awesome insights and perspective!

    Per Yra’s request, contact for suggestions to FRA: and

  5. Michael Weiser Says:


    I hope you, Jan and family are well. Why are you going underground? I enjoy your perspectives and appreciate the effort you put into “Notes”, of which I am a regular reader.


    • yraharris Says:

      Mike–I hope you and family are well.Just my confidant and key critique on this is having a baby so I will experiment with becoming my relevant in the zoom conference type world.Hope you and brother are well as are your children—really great to hear from you and stand next to you on the corner of 64th and Broadway

  6. Golfersteve Says:

    Yra, just want to share that I’m a grateful reader as I’m sure everyone else here is. I truly appreciate your candidness and help in interpreting central bank/monetary policy actions and help in seeing through the Wall Street Propaganda. And all for free without any catches or agenda. I, too, will take it however you choose to share it

  7. david Says:

    I’ve saved every article on here in Word since 2016 in fear of the day this site may close! You’re input is so helpful to my macro understanding of markets. I’m on board with whichever route you take, thanks Yra!

  8. mlkma17 Says:

    Enjoy and learn from every post here and your visits to Judd’s room.
    Thanks for the access.

  9. Pax Says:

    As a young trader I had the opportunity to learn from real HOF traders like Yra and Judd. I have learned more about global macro econ and fundamental trading from Yra Harris than I have from any one person. Thank you Yra for taking the time for the occasional question on the CME floor or in the hallway as we passed. I know you sat down to many the lukewarm cup of coffee after answering yet another simple question from me. I am grateful for the opportunity to continue to learn from you.

    Please feel free to contact me-


  10. karen kalaway Says:

    Hi Yra, thank you for all your posts, I wll surely miss them, and all the fabulous insights. Wanted to tell you that nearly 35yrs later I still have the Mount Blanc pen your father gave me on the floor of the CME. He like me and one day said ‘honey if you’re going to make money you have to write with money’, The pen was with me in my trading jacket until 2000 when the LIFFE floor closed. I still trade off the screens and your father’s pen sits on my desk, used every day. I was HRH on the floor in ES option pit. Best, Karen

  11. Charles Lewis Says:

    Please continue this formate.

  12. Trader 1 Says:


    3-4 Audio Conference per week would be great — Computer trading has destroyed the old floor trading days when you talked to people all day long – Where other traders demeanor and tone of voice were part of your trade — Bring some of that back

  13. Michael Temple Says:

    Best to you. Let’s wait to see what Mr Powell does and says later today. It seems highly unlikely NOT to expect mention of yield curve pegging as Jerome knows that the “machine” continues to need MORE everything.

    While Fed has reined in its QE purchases of USTs, dealers are quietly utilizing the Fed Repo facilities. Sure, that can continue. But, it also means UST 10 yr and longer will definitely widen out.

    Anyway, we shall see what the future holds in roughly 3ish hours.

    Mazel Tov to you and your family


  14. Pierre C Says:

    I am forever grateful for the knowledge you passed along. You have made this world we live in a little clearer to me.
    I now understand we have to know who the players are, what motivates them and how they are interacting with each other.
    I will do my best to follow you wherever you speak.
    Forever a teacher and a trader. Much respect to you my friend!

  15. the limey Says:

    godspeed trotsky I KNOW you have a cunning plan 🙂

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