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How Do Markets Feel About the Fed's Power?
HOW DO MARKETS FEEL ABOUT THE FED’S POWER
Here is what the June 2022 Eurodollar future and the NASDAQ future did while Fed Chairman Powell was speaking in Senate testimony yesterday November 30, 2021…
Here is part of how the still mighty NYTimes today Dec 1 reported about Powell’s comments in addition to his giving up calling inflation ‘transitory’…
“…Monetary policymakers had spent recent months focused on helping the economy to heal...
…To that end, The Fed’s policy interest rates, its more traditional and more powerful tool, has remained set to near zero. Officials had been stressing that they would be patient in pulling back that support and cooling down the economy, giving missing employees more time to return.
But their tone appears to be shifting as prices for food, rent and goods are jumping.
Slowing bond purchases quickly would put officials in a position to raise borrowing costs sooner rather than previously forecast. Lifting interest rates earlier or faster would pump the economic brakes, helping to slow homebuilding, business expansion and consumer spending….”
Note that Powell will be testifying constantly at his Senate confirmation hearings. Note also that by 12/15/21December 15th two things will happen;
1. Democratic efforts to pass the last humungous spending bill will conclude (meaning no further need for the Fed to hold down interest rates to aid the bill’s passage) and
2. Treasury Secretary Yellen estimates that the US will reach its debt limit (meaning much Senate talk about raising interest rates NOW to fight inflation).
CONCLUSION: I predict that the market will feel the Fed’s power to hold down interest rates is evaporating NOW! Therefore, sell the stock market AND the bond market (including sell all interest rate futures including the Eurodollar June 2022 future and the 30 Day Fed Funds April 2022 future both of which yours truly is already short) says
Big Bob the Bond Bear