New language: “In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”
By Wolf Richter for WOLF STREET.
The FOMC statement released today after its two-day meeting acknowledged for the first time that inflation resurfaced as an issue after a series of worrisome inflation reports so far this year have already killed Rate-Cut Mania. It added new language to that effect: “In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”
FOMC members voted unanimously today to maintain the Fed’s five policy rates, with the top of its policy rates at 5.50%, as had been broadly telegraphed all year with speeches, interviews, and panel discussions by Fed governors. The last rate hike occurred at its meeting in July 2023:
- Federal funds rate target range between 5.25% and 5.5%.
- Interest it pays the banks on reserves: 5.4%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 5.3%.
- Interest it charges on overnight Repos: 5.5%.
- Primary credit rate: 5.5% (banks’ costs to borrow at the “Discount Window”).
Push-back on Rate-Cut Mania: Back at the January meeting, the Fed had added new language to its statement to push back against Rate-Cut Mania. At today’s meeting, it repeated that language for the third time:
“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
QT slow-down starts in June: The Fed has been discussing for months in vague bits and pieces its future plans to slow down QT, on the theory, as Powell had put it at the last press conference, that “by going slower, you can get farther,” to avoid the kind of blowup they got in the repo market in 2019 which the Fed linked to QT-1. The Fed has already shed over $1.5 trillion in assets since it started QT in July 2022.
Today it said that QT will continue at its current pace through May but will slow beginning in June:
- The cap for the Treasury roll-off will be reduced from $60 billion to $25 billion
- The cap for the MBS roll-off will remain unchanged at $35 billion.
- If MBS roll-off excess of the $35 billion cap, the overage will be replaced with Treasury securities, and not MBS.
And it repeated: “The Committee is strongly committed to returning inflation to its 2 percent objective.”
It replaced the old language on the labor market:
“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance.”
With:
“The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year.”
Powell will likely use the press conference to provide more details as to when the slowdown might start and what it might look like.
It was a no-dot-plot meeting. Today’s meeting was one of the four meetings a year when the Fed does not release a “Summary of Economic Projections” (SEP), which includes the infamous “dot plot” which shows how each FOMC member sees the development of future policy rates. SEP releases occur quarterly at meetings that are near the end of the quarter. The next SEP will be released after the June 11-12 meeting.
Powell at the press conference on rate hikes, no rate cuts, rate cuts, and the QT slowdown while getting rid of MBS entirely: Oh Deary, Where Did my Rate Cuts Go? Fed’s Wait-and-See Now Entrenched? And Suddenly Lots of Talk about “Rate Hikes”
Here is the whole statement:
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Hopefully Powell will follow this up by NOT predicting a rate cut by the end of the year, or even better by suggesting rate cuts may not happen this year if inflation stays above target.
Hinting at the option of another hike would be even better than saying nothing at all.
The opposite?
Having markets hear “We will definittely NOT hike anymore this cycle”?
When he said: “The NEXT move probably won’t be a hike”
All continued wait and see, with the jawbone volatility machine open for business!
What Wall Street wanted to hear was the committee still mostly had an easing bias, dependent on the data cooperating. They got what they wanted.
Powell wasn’t talking about a new regime of structurally higher interest rates. Most of the committee members’ big-picture view of the economy hasn’t changed, even if inflation is stickier than they originally predicted.
He predicted lots of wait and see, LOL. They’re very unhappy with this resurgence of inflation.
The FED are so bad at everything, they should all be sacked. Another disingenious promise…QE was transitory
QE is over. Now we have QT.
Unhappy, perhaps. If they were “very unhappy” they would do something about it besides “wait and see.”
@MDM exactly. They seem to have infinite patience for getting inflation back down to 2%, given their goal to get it there “over the long run.”
If they don’t care too much about what higher inflation does to ordinary people over the short and medium run, why do they care about it in the long run?
Not much they really can do as the the issue here is probably not so much continued borrowing on the part of consumers and businesses, but rather continued borrowing on the part of the federal government who are currently running epic budget shortfalls due to several rounds of unpaid for tax cuts and in spite of high spending levels.
Wolf,
One theory I’ve heard is that the Fed wants to keep policy tight until Basel III Endgame is in place (July 2025). This is because Basel III makes it more expensive for shadow banks to execute deals using asset backed securities as collateral. It will prevent some risky excesses we’ve seen over the past couple decades. So the Fed will point to whatever data justifies keeping policy relatively tight even when there is conflicting data. What are your thoughts on this theory?
“Basel III makes it more expensive for shadow banks to execute deals using asset backed securities as collateral.”
I thought Basel III only applied to traditional banks?
I’m sure its just transitory.
Song: “Sloop John B,” by the 1960s band: “The Beach Boys.” Lyrics: “I feel so broke up, I wanna go home.”
“Hopefully Powell will follow this up…”
Think of the vast stupidity of a $30 trillion dollar economy and $180 trillion in accumulated worldwide savings being markedly swayed (every few weeks or so) by the calculatedly opaque announcements of some elevated twerp.
The worldwide economy has gradually evolved into something more and more truly moronic.
In the end, the real asset base of the world is the only damn thing that matters but its financialized overlay (blown about by 10th-rate charlatan wizards) is the subject of millions of hours of endless speculative yabber.
To the FED and their masters the only thing that matters is the financial overlay, and who ultimately owns and profits from the asset base.
Twerps are required to maintain the confidence game…
No one wants a hard money regime (except me). ITS TOO TRANSPARENT (and not conducive to manipulation).
When the hell ever they had 2% inflation ?
The problem is, every reporter there will try and induce him to talk about cutting rates.
He will see crazy questions like “What if Israel and Iran openly start fighting, oil goes to $200, companies start laying off people and there are net job losses each month. Will you cut rates then?”
Of course the FED would cut rates then. However that scenario is not likely. However you will now see headlines saying “FED considering rate cuts.”
They asked him about rate HIKES this time:
https://wolfstreet.com/2024/05/01/oh-deary-where-did-my-rate-cuts-go-feds-wait-and-see-now-entrenched-and-suddenly-lots-of-talk-about-rate-hikes/
The QT change will translate to a significant loosening of economic conditions. They are working against themselves for controlling inflation in the short run.
This is true, in the short run. Although Jamie Dimon stated he was worried about the chance of QT causing a liquidity squeeze/freeze somewhere, so there seems to be general thinking that insuring stability justifies this move, even though it drops long-term yields in the bond market for now.
It also has the effect of lowering the yields on upcoming long-term government auctions so that reduces the borrowing costs for the government temporarily, although I’m not sure how much that gets considered by Fed officials. Officially not their responsibility, although overall economic stability is.
I think the Fed *still* doesn’t get how QT works. For the markets, this move will have the same effect of $35 billion/month of QE, which we all know was a brilliant move during the early pandemic. QE and QT have asymmtric effects, as their own research shows, but they couldn’t connect the dots and see this will be a “virtual” QE.
Reducing the rate of bond rolloff isn’t the same as buying new bonds.
@MM,
A big drop in rates will tell you if it’s the same or not. Over the next four weeks, we are going to find out with certainty.
Drop in Treasury yields not rates.
JeffD,
“For the markets, this move will have the same effect of $35 billion/month of QE,”
You’re fantasizing.
1. slower QT is still QT; and
2. financial conditions have tightened in recent months despite everyone pricing in the slowing of QT for months.
10-year yield dipped 5 basis points today, to 4.63%, above where it was on Monday, LOL.
That knee-jerk stuff — Powell begins to open his mouth, markets jump — has unwound already. S&P 500 and Nasdaq ended in the red. Rug-pull at the end, as it dawned on folks what Powell actually said.
@Wolf,
I agree about the knee-jerk stuff. Let’s see where we are in a month. There will be a statistically measurable drop in yields as of today if I’m right. Financial conditions in the coming weeks are also something to keep an eye on.
I wouldn’t call 8bps a big drop in rates lol
@MM,
Let’s see where we are at a month from now. By then, we should have a (lot) higher yield than today on the 10 year as people wake up to the fact that inflation is entrenched. In contrast, I’m expecting the yield will be 4.4% or less due to this QT change. If it goes that low, it won’t be because of “Fed cuts”, that’s for sure. And it won’t be because of changes over at the Treasury, because the plans announced there were “as expected” according to a variety of money managers.
oh they sure do get *how it works*…
lets start with that..
what the fed is/isnt doing over a span of time may APPEAR to be counterproductive, even irresponsible. but its a matter of perspective. its been plainly obvious who they REALLY work for since the 2008 crisis.. the banking/financial system takes precedent over anything else. when you look at it from that perspective, their actions make more sense.
“this move will have the same effect of 35$ billion/month of QE”
yes, you are correct.
the fed is a quasi-gov’t/private institution. their bosses are the big banks and the federal gov’t. pressure continues to build on treasury yields and the gov’t continues to deficit spend to no end. this move reduces that pressure in the treasury markets, at least temporarily..
Wouldn’t a squeeze without a freeze be the best case scenario? We need the money to start moving out of cold hard assets and start normalizing the broader currency market. Granted it is a balancing act but I do feel like we are shooting ourselves in the foot here.
You can trust Jamie Dimon to say and push for eactly what is in his best interest.
@JeffD: If there was someone pouring gasoline on a fire with one hand and trying to douse it with water with the other hand, he would be dragged off to a mental institution.
How come we see Powell do it every couple of months and he is still the Fed Chair?
It does seem puzzling why at least since the Bernanke-led FOMC, the people who get promoted to chair are the ones who never get their economic forecasts right.
In contrast, the economists who nailed the current cycle eg Larry Summers are never asked to serve.
“pouring gasoline on a fire with one hand and trying to douse it with water with the other hand”
is the definition of regulation: steering some variable back and forth to keep it within normal limits. That’s what your driving and car or balancing in walking does; that’s what your heart and blood pressure do, that’s what the planet’s climate system does. A hard steer in one direction for any of these is catastrophic. But this dulled cinematic/football culture thinks flashy decisive moves in a direction bring victory, goal posts and out. It is an infinite game one wins by keeping the game going, not by getting one touchdown, roll credits and it ends.
phleep – eloquent observation.
may we all find a better day.
Lack of liquidity is historically what causes recessions.
The Federal Reserve may have jacked up rates to nominally high levels unseen in decades, but at the same time they’ve been bending over backwards to ensure markets have more than sufficient liquidity.
Then they’re scratching their heads about why “highly restrictive” rates haven’t done as much to cool the economy as they anticipated. 🤔
BS, 1. slower QT is still QT; and 2. financial conditions have tightened in recent months despite everyone pricing in the slowing of QT for months.
With respect to financial conditions, are you referring to the Chicago FED NFCI?
Not specifically, I’m looking a yields, esp. junk-bond yields because they really matter to companies and the economy. BB yield is up about 70 basis points since Rate-Cut Mania in late December, now at around 6.7%.
The Chicago Fed NFCI has crept up a few basis points too. But there are so many components in it that it’s kind of theoretical. Junk bond yields are what lots of companies face in the real economy.
There’s still WAAYYYYY too much liquidity in the system. Slowing QT is just another policy error in a list of FED errors so long that it’s getting difficult to track.
Powell opening his piehole about no rate hikes is yet another. He’s trying to jawbone bubbles higher and rates lower without actually lowering rates. He’s Arthur Burns redux.
LOL
You are sticking to your preconceived notions no matter how much it makes you look silly.
“Pick yourself up Jim”, there’s millions to be made….millions.
Boldness, timing, patience and a
per- bit of luck per favore. My goal is 100k, I’ll have to get it off of someone else’s loss.
Put another way,
I’ll steal it off a corpse.
I’ll settle for 50k if the corpse is a little light.
Howdy Youngins. YEP, higher for longer. If they lower first??? Inflation for decades.
Get ready for a new high in inflation, the Fed made it’s biggest mistake yet!
Market has jumped more than 1% in the 15 minutes after this announcement. While it had been down .2-.3% until then. Must have been some fear of a rate hike or talk of one.
Because the market is Fxxking insane and will OD on its own glue sniffing before getting slam on its head sideway..
At this point, anything but a rate increase will be consider dovish from Pow Pow from market’s perspective. Can’t wait until Sept when the market will blow another load if there’s any mention of a rate cut anywhere on that dot plot..
Phoenix, I think you should be a little more graphic. Don’t hold back or anything, lol.
LOL, have to self censor a little, probably won’t make it through Wolf’s filter if I want to go all out on how I feel about this market…
DRM
🤣 You spoke too soon. S&P 500 and Nasdaq ended in the red.
That knee-jerk stuff — Powell begins to open his mouth, markets jump — has unwound quickly. Rug-pull at the end, as it dawned on folks what Powell actually said.
Al fonso the bear has Powell in his sights, but the geezer was fast and up the tree he went.
As the bear slowly ascended the tree readying himself for the tasty snack that was to come, he heard Powells last words” we are strongly committed to 2% inflation”.
Powells head was found weeks later, covered in ants.
This is not a true story. I wish harm on no one.
It’s already priced into the shortage of inventory of the cleanest dirty shirts.
I quite like the degenerate nature of “the market” right now, even someone as inept as me can make a few pennies here and there from it, which has been nice because I’ve been able to fully hedge my miniscule investment account that I’m so fond off against the recent drops. Only thanks to the solid info Mr. Richter provides and 1 other analyst.
One thing for sure, this market is probably putting Vegas casino to shame since the era of easy money started. At least with a casino, you know what you’re walking into and more predictable in many ways..
Dealing with a casino is like dealing with a narcissists, once you know all their pattern and traits, you can react accordingly. Dealing with this market is like dealing with a sociopath/psychopath/manic bi-polar disorder all at once, except you don’t know which one you will get at any given day..
If you are making any pennies beyond T-bill rates, and are fully hedged ……….. sell the program and you’ll make Millions.
Powell basically stated that he doesn’t see the need for hikes.
That knee-jerk stuff — Powell begins to open his mouth, markets jump — has unwound already. S&P 500 and Nasdaq ended in the red. Rug-pull at the end, as it dawned on folks what Powell actually said.
yup hence my comments about this market….funny ow the market is like a reflection of all the worst quality in behavior roll into one..FOMOism, greed, cart before the house..etc
“Dealing with this market is like dealing with a sociopath/psychopath/manic bi-polar disorder all at once, except you don’t know which one you will get at any given day..”
this: “Dealing with this market is like dealing with a sociopath/psychopath/manic bi-polar disorder all at once, except you don’t know which one you will get at any given day..”
Can be KINDA like dealing w most parents and other central authority folx, eh rising bird???
Watching QT go down while inflation goes up,i just hope the Slower Qt helps
WHATEVER Powell is dancing around trying not to say, the markets (as always) seem to think he’s being dovish…Dow now up 450, Nasd +180!
Seems like to me (a novice on FED speak) that he is tailoring his words to only protect the asset holders and not spook anything DOW related.
The 25+ years I worked as a business consultant, delivering less than good news was always a tough chore and discussed with peers beforehand. Looks to me he is really good at this.
But, then again, the FED has no real measurable accountability for their actions.
Rosarito Dave,
Check again, LOL
S&P 500 and Nasdaq ended in the red
The trend on US treasuries is to break 5%. Any country wants to trade with Russia, that maybe even tacitly supports Ukraine, has no use for treasuries or dollars because they simply have to be sold as Russia cannot accept them. Then this external non-Russian company has no external treasury demand either. At the moment people are trying to get out of the treasury market.
Anybody can see the trend going above 5% and then what can the Fed do? Either collapse the economy with higher rates or sabotage the Biden admistration with borrowing costs. This is as the Japanese, allies of the US are forced into sellilng treasuries -as well- to defend the yen.
Its all starting to look scary. The only solution is to curtail spending by the US government. Why on earth they are risking such a hugely bad outcome for the dollar and borrowing costs. I hope they know something I don’t.
“QT slow-down starts in June: The Fed has been discussing for months in vague bits and pieces its future plans to slow down QT, on the theory, as Powell had put it at the last press conference, that “by going slower, you can get farther,” to avoid the kind of blowup they got in the repo market in 2019 which the Fed linked to QT-1″.
If our situation is that it is going to blowup by draining our excesses, it says where we really are. At this rate, there won’t be any Bazooka left for the next recession”
“The Fed has already shed over $1.5 trillion in assets since it started QT in July 2022”.
This sounds like the Middle East story I heard on camels. Load the camel to the hilt, if it refuses to get up / move; remove little bit and it becomes happy. We, the peasants who cannot afford a house or rent one, should also be!
Whatever Wolf says, the market is saying much louder with Nasdaq going from -1% to +1%
And we have the prospect of a different president who is proposing all sorts of radical measures for the FED. Interesting to watch.
“Whatever Wolf says, the market is saying much louder with Nasdaq going from -1% to +1%”
🤣 You spoke too soon. S&P 500 and Nasdaq ended in the red.
That knee-jerk stuff — Powell begins to open his mouth, markets jump — has unwound quickly. Rug-pull at the end, as it dawned on folks what Powell actually said.
Slowing QT. Repeatedly states that they are waiting to cut but said over and over again they don’t need to raise rates.
Get ready for the market to rocket and inflation to continue. Thank you Mr. Powell and the fed for making everyone’s lives miserable.
Listening to the questions in Powell’s press conference it is clear that someone is 100% desperate for rate cuts. Lots of “inflation ain’t so bad, right?” type of questions.
@grimp
Dow up almost 500 points right after Powell’s comments.
Of course Wall Street doesn’t care about inflation (as long as it doesn’t result in more tightening.)
Inflation is a Main Street problem. Lower-income workers spend almost all of their earnings on necessities. The billionaire class spends a very tiny fraction on necessities, and can afford price increases.
2021 shower Wall Street could have a party with 9% inflation while rates stayed at 0.
First presser I didn’t listen to in awhile… was wondering how many “hurr durr rate cuts” questions I missed.
This time it was all about Rate HIKES.
https://wolfstreet.com/2024/05/01/oh-deary-where-did-my-rate-cuts-go-feds-wait-and-see-now-entrenched-and-suddenly-lots-of-talk-about-rate-hikes/
He actually outlined a scenario where the Fed would raise rates. He was asked what it would take for the Fed to raise rates, and he responded: If inflation keeps creeping up.
I have come to realize that it really doesn’t matter what Powell says. Most people will hear what they want to hear.
If people are looking foe a rate cut they will hear snippets about cutting rates. If people are looking to complain about Powell not jacking rates up to 12% and punishing the world, they will find reason to complain.
I have discovered that most people are not looking for information and wanting to learn and understand. They are looking for their views to be confirmed.
It doesn’t make sense to someone like me who is looking to understand what the future holds, but people are wired the way they are
JimL figured out how the world works.
“Measure it with a micrometer, mark it with a piece of chalk, and the cut it with an axe.” Author unknown.
I am not miserable, but seeing your handle is failure, I’ll be miserable for inclusive sake.
…my life as “miserable failure” it will be.
Home toad is no more …
Why slow QT down when inflation objectives are not being met and while there is talk of a rate hike being necessary. It seems premature to me. The Fed could have waited another couple of months till there was actual evidence of inflation getting under control.
Oh well, the Fed doublespeak continues with each hand controlling both sides of the scale. Unfortunately, it prolongs and exacerbates the bubble in the stock market. Have to see what it does to the 10-year bond and mortgage rates.
Exactly!
That’s the line: keeping enough inflation to keep the leveraged economy alive,
While talking more people into joining: The Leveraged Economy!
If nothing else, the institutions need a bag holder and as observed the government needs their debt to be cheaper than the FFR.
The last few innings get way more crazy than the ones that got us here!
The FED wants to get back to a world where rates are the primary tool for fighting inflation, not QE.
This means removing the extra liquidity form the system delicately so as not to cause a liquidity crisis somewhere and force QE to come back.
“Acknowledged Inflation is a Problem Again” if this is true then no need to talk about qt slowdown.
As expected and as I said before, Powell sent out dovish signals out and market is out big while it was down in the morning.
It does not matter, how do you interpret… markets spoke
🤣 You spoke too soon. S&P 500 and Nasdaq ended in the red.
That knee-jerk stuff — Powell begins to open his mouth, markets jump — has unwound quickly. Rug-pull at the end, as it dawned on folks what Powell actually said.
Powell clearly stumbling when he was asked whether there was any discussion about raising rates…
He didn’t stumble at all. He stuck to his guns: Lots of wait and see. And he outlined a scenario under what conditions the Fed would hike rates: inflation continuing to rise this year.
Maybe that’s why markets got a rug-pull there at the end, when people realized what he actually said.
“Wait and see” is the WRONG POLICY, Wolf. Again, more stupidity – or dereliction – from this FED. They need to be aggressive to get this inflation under control. Alas, that’s not the goal. They entrenched it on purpose. And, when it takes off again, they’ll be yammering on about “nobodycouldaseenitcoming” as they begrudgingly raise rates.
Signaling no rate cuts this year should have been the goal today, with the stated intention of raising at the next meeting 25 basis points if necessary. But “wouldn’t wanna hurt billionaires and speculators.” Shit, I saw a $9.99 loaf of bread at the store a couple days ago.
Depth Charge, you’re just going to be furious no matter what, I think. And maybe rightly so.
“Wait and see” is total bull s$it already. Services such as Insurance, housing, taxes, utilities, medical care, transportation are all going up at double digits as we speak. These are double digit price increases on necessities. Restaurants are now inking in 15% price increases on menus without printing new ones. The Fed is asleep at the switch or they believe their own lies that they put out on a daily basis.
We go out a lot. We saw a big price increases – and tip mania, where pre-figured tips start at 20% — in 2022 and into 2023. But most of this has stabilized now (at high levels). Not talking about fast food and chain restaurants though. That’s a different ballgame.
But “wouldn’t wanna hurt billionaires and speculators.”
You might want to watch the documentary thecon.tv
Billionaires love a good blood bath…
> wouldn’t wanna hurt billionaires and speculators
It’s not that. It’s about hurting the incumbent’s already slim re-election chances.
I guess the markets like the QT reduction plan, all steam ahead.
Onward, to the moon!
🤣 Yawl spoke too soon. S&P 500 and Nasdaq ended in the red.
That knee-jerk stuff — Powell begins to open his mouth, markets jump — has unwound quickly. Rug-pull at the end, as it dawned on folks what Powell actually said.
…if I didn’t know better (and likely I don’t, but can’t blame you in any event), I’d think you’ve better things to do and decided to engage the ‘auto-reply’ function…
may we all find a better day.
nah, cav:
Wolf added a sailboat type to this one directly above, though maybe it’s a augmented reply program that spelled it as the boat rather than y’all or all y’all as is used where folx still say stuff like that these days.
Yawl is the correct and only way of spelling it. Yawl is an indivisible English word for people who actually use it. It’s like a personal pronoun. You don’t write Th’ey either. You write they. Y’all is how people spell it that don’t use it and are foreign to it.
VVNV – fair winds to y’all…
I think I’m starting to ketch on… the whole thing is rigged.
🤣❤️
Respectfully, Wolf, that is the dumbest shit you have ever posted.
Y’all is a contraction of “you all”.
“Yawl” is a type of sailboat.
drg1234,
You’re an idiot for not getting that I was making fun of things all the way along?
I mean not even the ROFL emoji right in front of yawl gave you any clues?
Slowing QT may be a reaction to winding down of the O/N reverse repo program which has fed $1.8 trillion in reserves back into the banking system since mid-2023. Also, the Bank Term Lending Program is winding down to zero which will eventually drain $125 billion in reserves.
Lots of moving parts to be able to accurately judge the net effect of what the Fed is doing. Best bet is keep an eye on total bank reserves. Total reserves contracted by $25 billion last month – the first drop in eight months. If it continues stocks will eventually start to feel it.
Feel it? You mean go up if the withdrawn reserves are used to purchase stocks?
That’ll be tough to do. Reserves represent cash in the banking system. If I buy a stock, my cash goes from my bank account, via the broker and some other stages to the bank account of the seller, and the cash thereby stays in the banking system. It just changes accounts.
Until the government stops the spending spree inflation isn’t coming down.
Rhonda – That’s my exact impression. We *should* pay careful attention to the Fed’s monetary policy decisions, But that’s not the whole story. The government’s *fiscal* policy (i.e., its spending) does matter when we talk about controlling inflation. Perhaps Wolf can enlighten us on the relative importance of fiscal policy in the inflation story over the last several years. Apologies to Wolf I’m being dense and he has already done this.
People who blame the government I’m pretty certain do not understand how the government works. They just like to blame something conspiratorially.
Because anyone who talks to them in RL is just way too stunned to respond to their claims. Their very aggressive claims.
A good response might be either to pivot the conversation to Star Wars and how unlikely Luke dunking that torpedo into the Death Star or perhaps the civil war and just let those bowling balls hit what they may.
C’mon, sufferinsucotash, are you telling me that the surge in federal government spending from $5.3 trillion in fiscal year 2019 to $7.7 trillion in 2020, $7.6 trillion in 2021, and $6.5 trillion in 2022 made zero contribution to the 20% cumulative inflation that we saw between 2109 and 2023? Instead of attacking other commenters with silly cultural references, challenge us with fact. Then maybe you will change our hearts and minds. I am open to learning new things and changing my perspective. Are you?
The M1 money supply went from under 5 trillion to over 14 trillion in 2020 https://tradingeconomics.com/united-states/money-supply-m1 You may be blaming the wrong admin for inflation there is always a delay between cause and effect.
“If MBS roll-off excess of the $35 billion cap, the overage will be replaced with Treasury securities, and not MBS.”
Depending on how much in MBS is due to roll off, this seems pretty important.
Also, the recent 95b aid package had seizure of treasuries, held by foreign entities, in the bill. Wonder if the reduction of treasury rolloff had anything to do with a possible decrease in treasury appetite/trust by other nations. Is the reserve doing damage control? (intentionally not mentioning countries to keep topic about finance)
It wouldn’t matter. As Powell said, even though the MBS cap has officially been –$35B/month since this round of QT started, in practice there’s only been more like –$15B/month to roll off in most months. So the cap is never hit.
Yes, it seems like this is a pretty big reduction in QE, from effectively ~$75B a month (treasuries & MBS combined) to ~$40B a month combined, almost cut in half. I had expected the new overall to be around $60B a month (so a $45B monthly cap on treasury rolloffs). I’ll be interested to see Wolf’s article on this.
I was under the impression that MBS rolloff rate would increase, but if it’s still at half of max then the issue of what happens after max really isn’t all that important yet.
Powell confirmed today that they’re trying to get of MBS entirely. They’re done with them. It’s just a matter of how fast.
At some point in the not too distant future, the Fed will have to choose between accepting continued elevated inflation or recession.
Inflation is threatening to move up again, yet the Fed chose to maintain current rates and slow QT significantly, so I’d say they are continuing to err on the side of high asset inflation and CPI inflation.
It will get interesting once markets realize the current monetary efforts are inadequate to tackle high inflation in any reasonable timeframe. The high inflation has continued for four years already, locking a significant number of people out of housing and investment markets. Every day this goes on, more people get hurt.
For the country’s sake, the Fed needs to take bold moves to stop the inflation and accept a cleansing recession. Sooner the better.
I imagine JPow getting ready for his press conferences with his calming mantra, WWBD, What would [Arthur] Burns Do? Let’s start with that, and crank it up to 11.
I’m not sure we can really say they are even acknowledging the bad inflation reports if they are paring back the already too slow QT.
Wolf: Powell is a professional, so he appears very sincere. And, he makes an effort to choose words wisely. How can he do this when he knows the Fed’s record. What is inflation up and the value of dollar down in last 50 years. The Fed has not successfully kept inflation low. ? Seems like a song and dance or a puppet show. Has the Fed actually served the American people well.
I believe Powell is genuinely concerned about his legacy. No Fed chair wants to be known for letting inflation blow up, and Powell is genuinely embarassed by the damage caused by QT/ZIRP.
“powell is a professional..”
yes, he is a lawyer and investment banker by trade.. just the type of background acceptable for the interests he REALLY serves..
yes, its just like a show.. going ‘off script’ is not something that is tolerated these days, as much as it might be needed..
there is nothing the ‘american people’ can do about jerome powell, or any other fed chairman. he isnt elected. and even if the position was elected, the big banks would make sure they get ‘their person’ elected anyway..
powell can do whatever he wants.. the ‘american people’ be damned..
Market just McLuvin the new QE
“New QE?” idiotic bullshit. S&P 500 and Nasdaq ended in the red. Rug-pull at the end, as it dawned on folks what Powell actually said.
There is a lot of hedging in the option market priir to any potential “event”. The options are reversed right after the event and usually result in an immediate market up because lots of stocks needed to be bought back. Then the market reverts to normal. I’ve 31followed this theory the past few years after reading the details by a volatility trader.
You mean people are actually gambling in the stock market? (LOL)
…akin to using the word: ‘extortion’ to lend the act of blackmail a bit of gentility, we use the word: ‘investing’, here…
may we all find a better day.
When something is fully unanimous at a high level and with as much uncertainty that exists.
You know it’s not truly unanimous
– This may surprise some people here on this blog, the charts were telling me that it was quite possible that the FED would start raising rates.
LOL.
On March 29, YOU said this:
– I can say the same for one Wolf Richter because he doesn’t know what he should be looking at, what metrics to look at.
– The charts (from e.g. Stockcharts.com) are even saying that there could be a rate cut as soon as next month (april 2024).
So where is this rate cut that I didn’t see coming for today, but that you saw coming? 🤣
Wonder if he is a politician….flip flop at its finest..
…it often appears the effort to be ‘first with the news’ (especially in terms of confirmation bias) outranks the effort to be accurate and thoughtful with same…
may we all find a better day.
Lol I remember that comment too
1:04 PM 5/1/2024
Dow 37,903.29 87.37 0.23%
S&P 500 5,018.39 -17.30 -0.34%
Nasdaq 15,605.48 -52.34 -0.33%
VIX 15.06 -0.59 -3.77%
Gold 2,324.80 21.90 0.95%
Oil 79.11 -2.82 -3.44%
‘It also launched its buyback program, with the first scheduled on May 29. The Treasury’s last regular buyback program began in the early 2000s and ended in April 2002.’
Is this stuff ominous? Hard to unpack this article
(Use reader mode to bypass…and apologies if no links allowed)
This is the Treasury department and not the Fed. The Treasury Dept. cannot create money. And since it’s in a huge deficit, it has to borrow money.
So essentially the Treasury Dept. swaps old bonds for new bonds in the same amounts. It doesn’t change the outstanding amount of debt.
And these buybacks are fairly small, $2 billion per operation.
The purpose is to make trading of old bonds (“off-the-run” securities) easier. They’re not easy to trade, and if you try to sell them, you can do that, but not at the current market yield, but at a higher yield (lower price). This is always an issue if you try to sell older bonds. If you ever owned bonds and tried to sell them, you know what that’s like (which is why I always intend to hold bonds to maturity). Selling bonds is not like selling stocks.
By offering to buy older bonds, the Treasury Dept. is trying to create more liquid trading, where they trade more easily with less of a haircut. The Treasury Dept has done that before about 20 years ago. It will make trading those old bonds a little easier, that’s about all it will do.
Hi Wolf,
Does the Treasury buy the old bonds at the lower price (thus saving Uncle Sam a smidgen), or is the price they offer similar to on-the-run bonds? Or do they split the difference?
A chart in this 2017 Federal Reserve letter shows historical spreads for seasoned 10-year bonds: https://www.frbsf.org/research-and-insights/publications/economic-letter/2017/02/do-all-new-treasuries-have-on-the-run-premium/
I don’t know where to find the current spreads.
Looks like there was a 20-40 basis point gap in the early 2000’s and 60 bps spike in 2008. Why doesn’t the Treasury let the market work? If an older bond trades at a significant discount (e.g., 50 bps), won’t that restore liquidity to that market?
Does the Treasury fear that, if the gap grows too large, people will try to pile into older bonds and drive up rates for new issues? Or are they concerned that there are some institutions who might really need to liquidate an 8.5 year old bond, and they can’t afford a 50 bps haircut?
TLDR, cui bono?
The Treasury has to buy at a price at which they can find sellers. If they bid too low, they’re not going to buy anything at all. The risk would be that they might overpay.
The Treasury market is huge, something like $26 trillion. But much of it is not very liquid, unlike the stock market. Which causes the spread you point out. The problem is that each bond issue is different from others in terms of maturity date and coupon interest. So you have all these CUSIPs out there, and they’re all different. Bonds were never designed to be traded in a rapid-fire manner. But when there is some stress, some entities might have to sell Treasuries to raise funds, and if the market isn’t liquid enough and fast enough, that’s problem, and that was a HUGE problem in March 2020.
I note that based on Wolf’s previous analysis, the “slow down” in QT isn’t really a slowdown from the plan. The current plan was only to let roll off, what rolls off. At some point the t-bills would run out, and then only t-bonds and t-notes would roll off.
Mr. Richter, I hope you’ll allow me to post your previous article link.
https://wolfstreet.com/2024/03/11/feds-qt-going-forward-the-treasury-maturity-schedule-roll-off-under-the-current-qt-plan-and-how-a-new-qt-plan-might-fit-in/
By Wolf’s analysis, in June, the Fed was projected to run out of t-bills anyway for the 60 billion cap. From there, the average runoff would quickly fall to ~25 billion or so a month on average.
This plan to drop to 25 billion a month starting in June is simply making the run-off smooth, instead of surging up and down as t-bonds and t-notes run off above or below 25 billion a month.
This is about as surprising as the sun coming up in the east at about dawn. It’s a very much “steady as she goes” order.
“By Wolf’s analysis, in June, the Fed…”
Wait a minute. That’s June 2025. I was clear about in the text and in the chart.
Ah, my bad. Opps. 2025…
So they’re early. Then I guess I should be slightly surprised.
Went by my “Gas Station from Hell” . Still posting $4.79 for regular. Other gas stations around here have raised their prices about 20 cents/gallon in the last 2 weeks. Inflation is alive and well. There will be no rate cuts this year.
SC,
Looked last night as prices had jumped from 2.89 to 3.29 for unleaded regular here in south Mississippi. Look for a drop tomorrow with the inventory build.
Saw $2.89 here in Texas today, down for $3.19 last week. Funny because we are heading into the summer driving season soon.
There will be the obligatory one CYA rate cut: “yeah, we said we would and we done it”
Noticed that yen/$ puked from 157.5 to about 154.5 last couple hours. Reaction to Powell or BoJ intervention again? (my guess is the latter)
Could there have been a big reaction by traders to make this happen?
Unless I’ve messed up the times, it should have all happened just after regular US trading hours closed, and well before any of the Far East markets opened.
I’m no expert, but doesn’t that just scream big institutional player? IE BoJ?
Ya the spike was right after US mkts closed.
There’s an article on ForexLive speculating that Japan’s MoF is selling its USD reserves to stabilize the Yen.
US stocks all time highs, US RE market at all time highs in majority of regions. This is a joke. They’re still juicing the economy, oh and don’t forget about creepy Joe spending on uncle Sam’s credit card like he’s trying to buy votes. LOL!
“US stocks all time highs,…”
Nope. Nasdaq Composite down 4% from it Nov 2021 high … that was 2.5 years ago. S&P 500 down 4.7% from its all-time high in March 2024.
“oh and don’t forget about creepy Joe spending on uncle Sam’s credit card like he’s trying to buy votes. LOL!”
It is clear you are literally 100% ignorant of how the federal government works.
Do the whole country a favor and don’t vote in November. The world will be a better place.
how does the federal government ‘work’, JimL?
please do explain, since you would need to know in order to label somebody else ‘100% ignorant’.
also, it doesnt really matter who votes for whom in november.. in case you havent noticed. the wars will continue, the irresponsible deficit spending will continue, the same o’l, same o’l.. will continue, regardless of what ‘team’ wins.
I’m not JimL, but I’ll give it a shot:
Congress decides in detail by vote how much money gets spent, who gets it, and when. And it’s the administration’s job to raise the funds via taxes and borrowing and execute the appropriation bills that Congress has passed, and make sure everyone gets paid.
Obviously the fed is in a very difficult place.
Raise rates while the economy is starting to send signals that some weakness might be arriving, the commercial real estate market is facing a possible black swan event and banks are stuck with loads of bonds with capital losses……..or
Lower rates with inflation cooking and looking to boil over, the dollar being challenged by some of our enemies and congress not learning a thing concerning how spending should equal higher rates.
So………..keep tightening but say it’s less and keep reminding the markets you have a gun that is loaded.
If there is a difference between now and a few years ago…….it’s that the gun is loaded……a few years ago the fed could and did raise rates 5 points without really scaring anybody…..now just a quarter point raise will send thunder into the markets and economy…….big difference from going from a quarter point to a half or going from 5 1/4 to 5 1/2.
Is it a partial pivot?……yes….because 25 Billion is not a spit in the ocean of dollars but the big gun is the FF rate. As long as that rate remains where it is and is cocked……nobody should assume it’s happy times……one meeting with a raise of the FF rate and the S&P could be at 2250 in two weeks.
“financial conditions have tightened in recent months despite everyone
pricing in the slowing of QT for months.”
How is the true? It’s widely understood that slowing QT will lower treasury yields. If the slower QT was priced in, why have yields been rising lately?
When the Fed slows QT, yields will drop some which has the effect of loosening credit which becomes cheaper.
Just look at the yields in recent weeks. They’re all up. The lows were in late December.
The Fed blew it and they know it. Treasury yields prove it.
To add insult to injury, Exxon is like a vulture down south in Guyana pumping oil like crazy, which will drive down oil prices, but not impact the inflationary pressures on service inflation. Rent, insurance, wages and groceries are still creeping higher no matter what.
We are living in strange times.
You mean Exxon and it’s operating partners, plus the country of Guyana, which receives royalty income on production. XOM has been investing Billions of dollars in that area for years and they are starting to recoup their investment cost.
It’s how oil companies find and produce new reserves. Nothing unusual. Remember, oil producers like XOM have to replace what they sell annually (periodically) or else they will eventually go out of business.
Newfoundland has an estimated 50 billion barrels of oil reserves, but Exxon bailed out to go down south. And it’s because Exxon had to pay a 1% royalty which was increased to a 2% royalty after a negotiation.
Oil prices will be hard to go up with increased supply from down south. Staple crops are failing which explains why food prices remain high.
Oil companies are private businesses and will make business decisions based on many factors. Apparently, Guyana was a better decision for XOM.
Not sure if this image will come through but it made me laugh my butt off.
We’re in a melt up. Or blow off top. Whatever. We’re going to 6-7k SPX before we crash. And I do mean crash
I’ll see if my vanguard money market comes in at 5.3% yield for the month of April. My 90/10 ground sirloin is now $18 for 2lbs. Ortega taco shells $2.50/box. 2 heads of lettuce and 5 vine ripe tomatoes $10. Large taco sauce $6 bottle(2). Shredded cheese $8. What use too be a simple meal is now $60 plus tax. What friend buys the beer has now become really scrutinized.
Howdy Everything is Inflated. Keep eating all that for a meal and guess what else will be inflated? HEE HEE
Bubba…tacos are becoming a traditional American favorite!
As always the fed is late to the party. The general economy is still strong and that is the time to raise rates and increase QT.
I am sure they will wait for a downturn to tackel inflation.
My guess is that we will see a pivot to language suggesting a 0.25% raise during the summer in Jun/July with it actually happening in Aug/Sept timeframe, before the election season gets too hot. Then they can be in a position to make another move up or down in Dec/Jan if necessary.
Meet the new boss, same as the old boss.
Hey Powell could you water down my money more? Please.
By now the rich have to be tipping more on the super yachts. Or do they just expect the scutmonkeys to wait on them hand and foot for the same amount?
Somewhere, someone rich is complaining that it’s just too expensive to charter a yacht, get blitzed out of your mind and try to piece together the weekend at the Marina bar. 😆
No, the rich aren’t tipping more.
Not on a super-yacht, but a land-based edition.
It’s a dichotomy at the top levels too: those who value people and those who value “their money.”
There’s some slowdown. People are trying to both cash in on valuation gains and park money in hard assets/ depending on the person.
True, the game show survivor started in 2000 and the 1st place contestant received 1 million $. Now 24 years later they are still giving out the same 1 Million $. Even though that contestant in 2000 could buy almost twice as many things with his money.
Some things never change.
Maybe the number of people watching also dropping half?
…always wondered why the big prize wasn’t one of being left, alone, to rule the island you struggled so hard to wrest from those you used to cooperate with…(…genuine consequences, where is thy sting?…).
may we all find a better day.
It’s stupid to keep saying this but Powell needs something to break to cut rates. But he cannot be the one to break, he has to blame something else. So he goes like “well, the market crashes and we will have to cut rates”. He will have to increase QT to cause market stress and then cut rates. But we have election this year so he will need to delay it for a while. Until then, it’s RISK ON
The country is running fairly well with the current interest rate structure, it’s inflation he (Powell) can’t seem to get a handle on, and that is one of the FED’s two mandates (low inflation~2% as they set as a goal).
It’s running great if worth-less money doesn’t matter.
Glad pow pow wasn’t too dovish so I could get into some puts and out of some calls
It’s really all so pathetic tho
Reducing the speed of QT… Not QE yet but they’re going to try and take some of the heat off the fiscal side. The fiscal spending has become a main stream negative political issue so only way to prop up assets is for the Fed to start doing some lifting. Doing this and holding rates can make them appear to be fighting inflation and saving face
Wolf would love to hear your thoughts on the projected Fed balance sheet expansion set to start in the next two years. I didn’t get this from some MW or zero hedge BS… Straight from the horses mouth
Then we’ve got the JPY getting slammed when when everyone is sleeping lol house of cards ready to fold
1. We’re going to watch the balance sheet contraction for a long time. And today’s QT slowdown announcement just lengthened the period of the balance sheet contraction. So we’ll watch it for even longer, and I’ll keep rubbing it in on a monthly basis.
2. You can fantasize about a balance sheet expansion in the privacy of your own home.
3. And I’ll just add this gratuitously: From 2003 through 2007, the balance sheet grew by 23%. That well before the beginning of QE. The balance sheet always expanded before QE because it grows with currency in circulation (demand based cash under the mattress) and now with the TGA (gov checking account that used to be held by JP Morgan until it was moved to the Fed in 2008.) So people who say that the balance sheet was flat before QE are ignorant idiots.
Yeah so that’s probably all there projections are is the balance sheet growing with gdp growth. Thanks!
BTW In the privacy of my own home there is no fantasizing about QE only swearing about the destruction it’s caused the middle class🤘
Were they bailing out bad debts with balance sheet expansion from 2003 to 2007?
No. I told you why it expanded, so I repeat: because currency in circulation expanded. Which is one reason why the balance sheet will expand again at some point in the future; and I’ll repeat: the other reason the balance sheet will expand in the future is because now it includes the TGA, the government’s checking account, which keeps growing as expenses grow. Before 2009, the government banked at JPM. But during the financial crisis, it shifted its checking account to the New York Fed.
Are they cutting QT from 90 billion a month to 65 billion a month? I actually liked that reporters question. Why wind down QT but remain at the same FFR? Are they just throwing in the towel?
Powell re-explained for the umpteenth time why they’re slowing down QT. It’s just that the reporter didn’t pay attention over the fast three months.
Here is how Powell ex-explained it:
https://wolfstreet.com/2024/05/01/oh-deary-where-did-my-rate-cuts-go-feds-wait-and-see-now-entrenched-and-suddenly-lots-of-talk-about-rate-hikes/
Suddenly all the Fed Pivoteers are coming out of the woodwork !
No, I get it. Reducing QT will reduce the balance sheet in the long term, and that’s sincerely great. In the short term, however, this change in QT policy will push up inflation and pull down yields. Less disinflationary = more inflationary.
The bond market can react however it wants, but fighting the long-term uptrend in rates is a losing battle.
Did you read the latest QRA? New coupon issuance is only getting bigger as the Treasury needs to finance new spending. Previously MMFs were able to finance the gov’t by buying T-bills, but that will slow down.
Inflation is still high and I honestly beliefe J Powell is embarassed by this.
To me, all things point to structually higher rates in the next 10+ years. I’ll keep my TLT shorts open.
ZH saying bigger than expected QT taper in June and that means the Fed effectively told the markets that rates are too high. Lol
Fed can say what they want, it’s commodities and inflation expectations that are in control. Food, energy, shelter, etc are going up and expectations with it. Not even the Fed number crunchers will be able to hide what’s going to be serious pain this summer. Right on time leading up to the elections too, lol.
People who read ZH for information deserve all of the pain their ignorance brings them in life.
Only because it is willful ignorance.
Well, ZH is good for is pointing out an “inconvenient truth” here and there. But, it is “advocacy journalism” with an agenda.
We’re getting a controlled narrative out of Bloomberg and CNBC. ZH offsets that somewhat.
As far as getting this comment back on subject, I think the Fed would be resistive to hikes, because it would add stress to a banking sector where depositors are increasingly waking up that better interest rates are available elsewhere. If there was no banking situation, then I would see hikes as more likely. But, because of the banking situation, I think any talk of a hike is a bluff.
ZH started saying in June 2022 that the Fed would cut rates by September 2022, and that QT would run only a couple of months before the Fed would be forced to stop because the labor market was collapsing or whatever.
A couple of thoughts:
1. Markets move unpredictably. It is easy to say the market is up/down because of the FED, Powell, the moon, the stars, pig entrails, or whatever because at worst you have a 50/50 shot of being right. Even better markets often change, so even if you initially are right or wrong, it might change shortly later.
I think people who try and attribute any short term market movements to a particular event are mostly fooling themselves. Short term market movement predictions are 99% bunk.
2. It constantly amazes me how many people are not looking to learn or are not looking for new information, but instead are looking to have their biases confirmed. They don’t care about learning, they just want to be right in their mind.
Ya I don’t get the obsession w intraday rate moves. Interest rate cycles are long term trends.
That said, many many months fom now, a researcher at one of the Federal Reserve banks will be publish just how much toray’s QT policy change affected Treasury yields, with accurate error bounds. And I’m not being sarcastic.
Readers of this website know that the actual QT has been running around only $75B a month so far. Max Treasuries of $60B, but less than half the max $35B of MBS.
The Fed is now saying $25 + $35 B. Really trying to run down those mortgages. Maybe they know that as the economy (finally) begins to turn that people will be selling houses and paying off 3% mortgages whether they want to or not.
I’ll be very interested to see the Fed balance sheet summary going forward. They might hit the $60B pretty consistently now, which really means -QT (is that +QE?) of only ~15B a month.