How Aggressive Will The Fed be? 4/11/2022
ES Daily.
First off, most traders are not economists. In fact, most retail traders are (ironically) financially illiterate. For example, can you answer the difference between monetarist theory and Keynesian Economics theory? Do you know the difference between a 10K or a 10Q?
The reason why I'm making these statements is because most traders seem to confident in their predictions. However, once questioned with basic economic or financial questions, that's when you can tell their "prediction" is based on bias and opinion and not actual data. Historically, that type of behavior is dangerous.
For example, economists and retail traders were panicking over another recession back in 2011, 2013, 2015, and 2018.
The question is the title is also relevant. A lot of talking heads on news media, social media posts, and retail traders were so worried about the first rate hike leading up to March FOMC. In the macro view, the first rate hike rarely causes a large crash. Although, the weeks leading up to the first rate hike usually has a correction of around 11%-ish.
What traders should've been asking is how aggressive will the Federal Reserve be with both rate hikes and money vacuuming (reverse money printing)? Will they go slow like the 2010s or fast like in 2004-2007?
Historically, whenever the Federal Reserve aggressively raise rates and tighten, a recession follows 1-3 years after. 1979-80, 1990-92, 1999-2002, and 2008-09 all experienced aggressive tightening 1-3 years before.
Each recession has different conditions. 2008 had 14 years of bad mortgage debts. When the Fed aggressively raised rates from 1% to over 5% in less than 3 years, that didn't give enough time to prune out the bad debts in an orderly fashion. From that experience, that rocked the Fed's psychology which is why they went slow during the 2010s. After all, would you want to go down in history as the person who caused another 2008 Recession? Not many would.
The Fed's story is basically Goldilocks. Their quantitatively tightening should've be too fast or too slow. It's a balancing act. Too slow and inflation might run away. Too fast and a bigger recession might happen. The Fed managed to have low growth and low inflation in 2018. I think they're trying to strike lightning twice like they did in the 2010s and 1994.
Remember, it's very easy to say to accept a recession as a price to control inflation. It's much harder if you're not part of the ultra wealthy class. During 2008, the ultra wealthy lost their yacht or larger estate. The working class lost their jobs. The middle class lost their small businesses.
First off, most traders are not economists. In fact, most retail traders are (ironically) financially illiterate. For example, can you answer the difference between monetarist theory and Keynesian Economics theory? Do you know the difference between a 10K or a 10Q?
The reason why I'm making these statements is because most traders seem to confident in their predictions. However, once questioned with basic economic or financial questions, that's when you can tell their "prediction" is based on bias and opinion and not actual data. Historically, that type of behavior is dangerous.
For example, economists and retail traders were panicking over another recession back in 2011, 2013, 2015, and 2018.
The question is the title is also relevant. A lot of talking heads on news media, social media posts, and retail traders were so worried about the first rate hike leading up to March FOMC. In the macro view, the first rate hike rarely causes a large crash. Although, the weeks leading up to the first rate hike usually has a correction of around 11%-ish.
What traders should've been asking is how aggressive will the Federal Reserve be with both rate hikes and money vacuuming (reverse money printing)? Will they go slow like the 2010s or fast like in 2004-2007?
Historically, whenever the Federal Reserve aggressively raise rates and tighten, a recession follows 1-3 years after. 1979-80, 1990-92, 1999-2002, and 2008-09 all experienced aggressive tightening 1-3 years before.
Each recession has different conditions. 2008 had 14 years of bad mortgage debts. When the Fed aggressively raised rates from 1% to over 5% in less than 3 years, that didn't give enough time to prune out the bad debts in an orderly fashion. From that experience, that rocked the Fed's psychology which is why they went slow during the 2010s. After all, would you want to go down in history as the person who caused another 2008 Recession? Not many would.
The Fed's story is basically Goldilocks. Their quantitatively tightening should've be too fast or too slow. It's a balancing act. Too slow and inflation might run away. Too fast and a bigger recession might happen. The Fed managed to have low growth and low inflation in 2018. I think they're trying to strike lightning twice like they did in the 2010s and 1994.
Remember, it's very easy to say to accept a recession as a price to control inflation. It's much harder if you're not part of the ultra wealthy class. During 2008, the ultra wealthy lost their yacht or larger estate. The working class lost their jobs. The middle class lost their small businesses.