Posts Tagged ‘QT’

Notes From Underground: Discussing Europe With Dr. Barbara Kolm

May 10, 2022

Last week the FOMC raised rates by 50 basis points, which seemed like the most likely outcome (although interest rate markets had assigned a slight probability of 75 basis point increase). The statement was nothing if not vague about the FED‘s plans, yet the last sentence left the central bank room for flexibility: “The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

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Notes From Underground: A European Discussion With Professor Polleit

May 3, 2022

Yes, Wednesday is FED day and the markets are expecting a 50 basis point increase in the FED FUNDS RATE to a range of 0.75% to 1%. The most important issue will be the size of the balance sheet unwind and whether Chair Jerome Powell is good to his heightened concerns about headline inflation means a full throttle on balance sheet shrinkage, reaching the full $95 billion a month at a quick pace. So Jerome, let’s have at it and let the markets decide the impact on myriad asset classes. In 2018, this double shotgun of QT and interest rate hikes proved too much for the highly leveraged global markets. Now that the Fed’s balance sheet is twice as large let’s see how it will affect the leverage in the global system.

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Notes From Underground: Time to Escalate and Deescalate the Fed and Putin?

April 10, 2022

There was an article in Foreign Affairs this week by Graham Allison, the dean of American political scientists, titled, “Putin’s Doomsday Threat: How to Prevent a Repeat of the Cuban Missile Crisis in Ukraine.” The piece raises an important tactical question about escalating the violence in an effort to prevent a greater catastrophe similar to what President Kennedy was threatening in 1962. It’s worth a read as it was Allison’s book, “The Essence of Decision,” that provided the understanding of the bureaucratic mindset during the nuclear age. It provoked me to think that the escalate to de-escalate seems to be the paradigm of the FOMC as complacency over zero interest and transitory inflation has given rise to policy makers’ more hawkish jawboning. Uber-doves Charlie Evans, Mary Daly, Jerome Powell, Lael Brainard have been on a mission to find their INNER VOLCKER (at least rhetorically).

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Notes From Underground: Is It George Bailey or Henry Potter?

February 16, 2022

Bank of England Governor Andrew Bailey made a ridiculous comment almost two weeks ago and I’d be remiss not to mention it. Bailey issued his own FORWARD GUIDANCE on how to slow the pace of inflation. He suggested that people refrain from seeking big pay raises. It’s astounding that a sitting member of the G-7 Finance Group has the temerity to restrain the AVERAGE WORKER while promoting QE policies that have stoked a serious rise in asset prices for those who own antique autos, stocks, precious metals, art, multiple homes and any other asset class on the planet.

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Notes From Underground: Bernard Connolly Is Worth a Good Whiskey

February 1, 2022

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Notes From Underground: Which Spark Will Start the Prairie Fire?

September 27, 2017

In several blog posts over the last eight years I have used the words of Mao to relate to the potential issues that could cause severe disruption to the global financial system. If you listen to the narrative propagated by the mainstream financial media your concerns would revolve around North Korea, the Trump tax and healthcare plans, the FED starting QT (or else citing the Fed’s ridiculous dot plots), concerns about the potential shutdown of the U.S. government, the economic implications of Brexit, etc. The bottom line is that all the forecasters have been wrong for long as Phillip Tetlock revealed in his wonderful book, Superforecasting. The FED has been worshiped as all-knowing fonts of wisdom when nothing they have forecast has proven correct. Yesterday, Fed Chair Janet Yellen admitted that the FED is as confused about the lack of inflation as most of the prognosticators on Wall Street. This confirmed my theory that what the FED peddles IS NOT ROCKET SCIENCE.

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Notes From Underground: The FOMC, BOJ and German Elections Lead the Way to Quarter-End

September 18, 2017

As the earth rock keeps spinning we continue to monitor global events that could make investors/traders dizzy. This week the FOMC is EXPECTED to announce that it will begin its quantitative tightening (QT) by revealing the date of its plan to shrink its balance sheet by a net $10 BILLION of assets a month ($6 billion of Treasuries, $4 billion of MBS) and increasing the amounts quarterly so the program results in little market disruption. Remember, Chair Yellen has said she believes that it will be “like watching paint dry.” The world’s equity markets — especially the U.S. — are reflecting little concern about the Fed withdrawing “small” amounts of liquidity.

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Notes From Underground: Fischer and Cohn, Out; Draghi In (the Spotlight)

September 6, 2017

In keeping this note as short as possible, let’s start with Vice Chairman Stanley Fischer’s resignation. I am posting snippets from the August 20 entry, in which I noted the great piece in the Weekend Financial Times with its Stanley Fischer interview. The article noted the one open disagreement with Chair Yellen in which he was miffed about not being consulted about an FOMC decision. We don’t know if Stanley Fischer is resigning because of health reasons, personal issues or over policy disputes. But this I am sure: Lael Brainard has been elevated within the group of Fed Governors as she is the confidant of Chair Yellen, thus the FED takes a dovish stance. In her dovish speech she maintains that while desiring to keep FED FUNDS steady there is room to initiate some of the balance sheet unwind. This was also her stance in June when she presented arguments for QT versus raising the fed funds rate. The impact from the initiation of Boockvar’s QT would not be as great on the U.S. dollar.

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Notes From Underground: It’s All About the Narrative

August 27, 2017

The Kansas City Fed Symposium was steeped in boredom as all the hype failed to live up to the expectations of the media. The excitement centered around Mario Draghi potentially dropping hints about the beginning of quantitative tightening (QT). Rick Santelli spoke with former FOMC Governor Mark Olson, who rightfully predicted Chair Yellen would not reveal any sense of Fed intentions but he was dead wrong about Draghi. Olson opined that Yellen put the spotlight on President Draghi, but the ECB President must have suffered stage fright as he very bland when speaking to concerns about the Trump administration’s move to economic nationalism. There was not a single word about ECB policy.

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Notes From Underground: Recapping a Week of Notes

August 13, 2017

Lately, the primary themes in the media revolve around the bombastic rhetoric from the leaders of the U.S. and North Korea. Again, the key to a genuine possibility of warfare will be the beginning of the evacuations of Americans from Seoul, South Korea. The more important elements for global financial markets seems to be directed at ECB President Mario Draghi’s upcoming Jackson Hole speech. In Thursday’s Financial Times, Mohamed El-Erian asked the paramount question concerning the shrinking of central bank balance sheets: “… how many systemically important central banks can effectuate the policy pivot without undermining the over-all liquidity support that has been critical for decoupling asset prices from fundamentals.”

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