It was a fortuitous day that Richard Bonugli arranged a podcast with Joseph Wang, author of the Fed Guy and an former employee of the New York Fed’s System Open Market Account (SOMA). The podcast was recorded 90 minutes after the release of Tuesday’s CPI data so there was much to discuss in real time about FED policy, the recent moves in the SPOOs, dollar, commodities and precious metals were all reversed because the MARKETS seemed to have been caught off guard by a much higher number than Wall Street pundits anticipated.
Core CPI was TWICE the forecasted number as RENTS and FOOD far outpaced the large drop in energy prices at the PUMP. The RENT numbers should not be a surprise for readers of NOTES FROM UNDERGROUND as myself (and Peter Boockvar, and Jim Bianco) had been warning for the past 18 months that RENT data would keep CPI very elevated. (This was the leading rationale against the Fed’s notion of transitory inflation.) In response to the elevated data, yields on the short-end of the curve rose dramatically and the 5/30 moved 16 basis points, inverting yet again. The 2/10 curve went from NEGATIVE 19 to NEGATIVE 34 BASIS POINTS by the close. There is now talk of the FED raising rates next week a FULL PERCENTAGE POINT.
It’s interesting that the only fly in the market’s ointment Monday was that the DEC22 FED FUNDS futures contract closed at contract lows and Tuesday dropped another 25 basis points SIGNALING a FED FUNDS RATE of 4% by the end of the year. If that is the case the FED will have to RAISE RATES by 150 basis points over the next three and a half months. This will raise issues after the impact of DOLLAR STRENGTH on the fragility of the global financial system. In Tuesday’s podcast we dove into the DOLLAR, as well as the full-throttle of QT on the deleveraging of the global system. A STRONG DOLLAR will bring relief to US INFLATION only if it slows the entire global economy. My readers are aware that this outcome is fraught with danger. The DOLLAR FOR THE US is not so much a trade issue but more importantly a FINANCIAL TOOL that finances the entire edifice of global trade and investment.
Listen to the podcast and learn from one of the better financial plumbers discussing genuine trade and investment opportunities. As we discuss at the conclusion of the PODCAST, Joe and I are waiting to hear from the newest FED GOVERNORS, Lisa Cook and Phillip Jefferson, whose research is centered on labor economics. How comfortable is the FED board in slowing the economy by stifling demand in an effort to increase unemployment? There will be many people to lose jobs THROUGH NO FAULT OF THEIR OWN. Larry Summers is talking unemployment having to go to 6%. Now we’re waiting to hear from some new voices.
Click here to listen to the podcast.
Tags: CPI data, fed funds futures, Fed Funds Rate, Fed guy, Federal Reserve, Joseph Wang, QT, quantitative tightening, US dollar
September 15, 2022 at 12:54 pm |
Yra thank you for the podcast. The predictions were appreciated.
September 17, 2022 at 2:13 pm |
Yra, thanks for another great podcast,
As for “full-throttle on QT”, I’m not fully read-up on the Fed, as there are other important distractions happening too, but I think I heard they’re not gonna do any more QT for MBS as was announced before months ago to have begun in September, because the housing market has been in meltdown for months already. I notice that numerous treasury auctions have lately fared poorly so I wonder whether they will chicken-out from doing more QT of Treasuries, too.
Re Jason Wang: “The US is locked in a world where there will always be QE, because the Fed will have to ultimately become the [UST] buyer again. The growth in Treasury issuance is faster than the market can handle by itself.” That’s stating the obvious, even before the new inflationary Inflation Reduction Act.
https://www.barrons.com/articles/federal-reserve-quantitative-tightening-stock-market-51662736146
September 17, 2022 at 2:21 pm |
^ Correction:… It’s “Joseph Wang”, the article writer above and your podcast guest, not “Jason Wang”, a local guy here. Brainfart attributable to my aging feeble mind and the local time of 4AM here – g’night!