Respectfully.... if that is possible, I disagree with the Federal Reserve. I do not see how inflation can move higher in an economy that is slowing, income growth softening, retail consumption waning.... all amidst rising delinquency rates. I just have a tough time with what seems like basic economic principles.
On the one hand, mopping up excess liquidity is crucial, lest the economy be put into a mode where there is too much liquidity, and a bubble on assets appears. Well, that assumes we are not there already. I think that is the intention of the Fed's moves. But, this intention is going to be balanced by two things. First, by shrinking the balance sheet, the Fed will push up the long end. But, that pushing up of the long end, which will draw in capital, will also keep interest rates lower simply because there is so much demand for yield. The long end will head higher, just not too steeply.
I believe the Fed will pull this off. I do not believe our economy will be very robust while the Fed does its work. I do not like the linearality, one-track mind of the way the Fed is going about this. The economy will soften, yields will soften.
We may see the entire Trump rally disappear.
On the one hand, mopping up excess liquidity is crucial, lest the economy be put into a mode where there is too much liquidity, and a bubble on assets appears. Well, that assumes we are not there already. I think that is the intention of the Fed's moves. But, this intention is going to be balanced by two things. First, by shrinking the balance sheet, the Fed will push up the long end. But, that pushing up of the long end, which will draw in capital, will also keep interest rates lower simply because there is so much demand for yield. The long end will head higher, just not too steeply.
I believe the Fed will pull this off. I do not believe our economy will be very robust while the Fed does its work. I do not like the linearality, one-track mind of the way the Fed is going about this. The economy will soften, yields will soften.
We may see the entire Trump rally disappear.