In every single rate hiking period since the creation of the scam that is the Federal Reserve, rates went up slowly but dropped rapidly. They take the stairs up, but the elevator down. Every. Single. Time.
The end of the BFTP at the same time we’re starting to see stress in the banking sector is telling. It’s clear that the Fed either needs to renew the program OR start some QE. They simply cannot do both without major, systemic disaster in the economy. They announced the end of the BFTP, so I think it’s clear which of those two options they have chosen. But they do not want the public to realize what the Fed’s plan is. They want us to continue to believe the “higher for longer” narrative, for as long as possible.
Beyond the brewing banking crisis, there are a lot of signs of serious downturn and distress. Many of these indicators only just started flashing red, in January. So they are very recent. We know the Fed is mostly backward looking and their data is always lagging. They haven’t factored in all the new stuff that is starting to happen. Case in point: yesterday, the bank NYCB announced that it is in trouble, the stock dropped 50%. The Fed was not prepared for this happening on the same day as their FOMC meeting. They already had their speech prepared, and their paper ready to release. When they released the paper, they crossed out the words: “The U.S. banking system is sound and resilient.” They didn’t have time to fully revise their statement, so they just crossed this part out completely. They also seem to have told reporters to not ask anything about NYCB’s impending failure. The Fed learned about it only hours before their meeting, and did not have time to reevaluate. So they pretended that everything’s fine, and they pretended that there is no stress in the banking sector currently. Even though, there clearly is.
This brings back to my opening statement. Interest rates take the stairs up, but the elevator down. I think something is going to break before or around the March timeframe. Something big enough to cause an instant rate cut from the Fed, probably something around 100 basis points immediately. The elevator down.
The markets are not pricing this possibility in, whatsoever. They’re still buying the “higher forever” narrative. I think a rate cut is coming in or around March, even though they’re trying their best to make us think otherwise.
Thoughts?