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.
100 sats \ 0 replies \ @kr 1 Feb
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.
respect the specific prediction, i’d take the under on 100 basis points though (would also take the under on 50 bps)
If your thesis is correct, what would you expect to see over the next couple weeks as far as narrative goes? Didn't we see dovish stories over last couple days?
I think people generally took the J Pow's overall stance as slightly hawkish yesterday. Which I think was surprising to most, especially on the same day as a new bank crisis appeared to be brewing.
I guess I expect the mainstream narrative to be about the same as it was before yesterday. Everyone's expecting slow rate cuts starting in July, with no cuts until then.
But that's never how cuts historically happen. They "take the elevator down" because something starts to break. My thesis is that we will get an elevator moment before July.
The Fed has convinced everyone that they're going to take the stairs down, just as they took the stairs up. This is the soft-landing dream. Maybe this time is different and it will turn out that way. Everyone seems to believe that's how it will play out. Historically, though, something forces them to take the elevator down, and I kinda think it will be like that again this time. But I can't say for sure.
Its because most rate reductions come after a black swan event for lack of a better term. It's kind of silly if you ask me. Like giving candy to a child.
It has not really happened like the following historically but one could imagine a future where rates take the stars down and the elevator up. Slowly step down the rates to ""fuel"" the economy and when inflation goes up they're like "no no our money isn't worthless look here" and raise rates fast.
Very much agree. I honestly didn't think they would keep raising rates as long as they did, but it has been aggressive posturing from the beginning. Even if the first cut doesn't happen by March, I can't see it not coming before this summer.
If You watch how CBs are following the 2YY like a little dog.... You're probably right