After being criticized for being slow to recognize inflation, the Fed has embarked on its most aggressive series of rate hikes since the 1980s. From near-zero in March, the Fed has pushed its benchmark rate to a target of at least 3%. At the same time, the plan to unwind its $8.8 trillion balance sheet in a process called “quantitative tightening,” or QT — allowing proceeds from securities the Fed has on its books to roll off each month instead of being reinvested — has removed the largest buyer of Treasurys and mortgage securities from the marketplace.
“The Fed is breaking things,” said Benjamin Dunn, a former hedge fund chief risk officer who now runs consultancy Alpha Theory Advisors. “There’s really nothing historical you can point to for what’s going on in markets today; we are seeing multiple standard deviation moves in things like the Swedish krona, in Treasurys, in oil, in silver, like every other day. These aren’t healthy moves.”
For now, it is the once-in-a-generation rise in the dollar that has captivated market observers. Global investors are flocking to higher-yielding U.S. assets thanks to the Fed’s actions, and the dollar has gained in strength while rival currencies wilt, pushing the ICE Dollar Index to the best year since its inception in 1985.
“Such U.S. dollar strength has historically led to some kind of financial or economic crisis,” Morgan Stanley chief equity strategist Michael Wilson said Monday in a note. Past peaks in the dollar have coincided with the the Mexican debt crisis of the early 1990s, the U.S. tech stock bubble of the late 90s, the housing mania that preceded the 2008 financial crisis and the 2012 sovereign debt crisis, according to the investment bank.
The dollar is helping to destabilize overseas economies because it increases inflationary pressures outside the U.S., Barclays global head of FX and emerging markets strategy Themistoklis Fiotakis said Thursday in a note.
The “Fed is now in overdrive and this is supercharging the dollar in a way which, to us at least, was hard to envisage” earlier, he wrote. “Markets may be underestimating the inflationary effect of a rising dollar on the rest of the world.”
In this video we analyse the two possible outcomes from the FED.
Source: Bloomberg
“The Fed is breaking things,” said Benjamin Dunn, a former hedge fund chief risk officer who now runs consultancy Alpha Theory Advisors. “There’s really nothing historical you can point to for what’s going on in markets today; we are seeing multiple standard deviation moves in things like the Swedish krona, in Treasurys, in oil, in silver, like every other day. These aren’t healthy moves.”
For now, it is the once-in-a-generation rise in the dollar that has captivated market observers. Global investors are flocking to higher-yielding U.S. assets thanks to the Fed’s actions, and the dollar has gained in strength while rival currencies wilt, pushing the ICE Dollar Index to the best year since its inception in 1985.
“Such U.S. dollar strength has historically led to some kind of financial or economic crisis,” Morgan Stanley chief equity strategist Michael Wilson said Monday in a note. Past peaks in the dollar have coincided with the the Mexican debt crisis of the early 1990s, the U.S. tech stock bubble of the late 90s, the housing mania that preceded the 2008 financial crisis and the 2012 sovereign debt crisis, according to the investment bank.
The dollar is helping to destabilize overseas economies because it increases inflationary pressures outside the U.S., Barclays global head of FX and emerging markets strategy Themistoklis Fiotakis said Thursday in a note.
The “Fed is now in overdrive and this is supercharging the dollar in a way which, to us at least, was hard to envisage” earlier, he wrote. “Markets may be underestimating the inflationary effect of a rising dollar on the rest of the world.”
In this video we analyse the two possible outcomes from the FED.
Source: Bloomberg
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