Image Source: Pixabay
 

BACKTALK FROM THE BOND MARKET
 

Investors keep looking to the Fed for supposed "forward guidance". They are looking in the wrong place. Since mid-December, bond prices have declined another 5% and are currently at new 52-week lows. Here is an updated chart of U.S. Treasury Bond ETF (TLT)...

U.S. Treasury bond prices have now declined 16% since the Fed announced a reversal in its interest rate policy and the first rate cut last September. The latest weakness comes in the face of a second rate cut, so it begs a repeat of the question I posed last October...

"Why are bond rates rising at the very time the Fed is trying to move interest rates lower?" (Fed Cuts Rates But Bond Rates Are RISING)

Previously I indicated the possibility that "What is likely troubling to the bond market at this time is the threat of a resurgence of inflation..."

Subsequently, the Fed announced a second rate cut, but the announcement lacked the conviction that inflation is under control and that multiple rate cuts could be expected for 2025.

I don't so much think the Fed has suddenly had a change of heart. The situation is precarious and the cumulative effects of more than full century of money creation (inflation), mis-management, and manipulation have evolved into a game of playing catch with a ticking time bomb.

Former Fed presidents Greenspan, Bernanke, and Yellen all know this and have kicked the can down the road. Jerome Powell was likely aware of the ongoing threat of a catastrophe from which there is no return. The opportunity to be "numero uno" for a season, however, must have displaced any fear of presiding over a credit collapse and economic depression.

THE FED'S DILEMMA
 

The Federal Reserve doesn't know what to do; but it probably doesn't make much difference anymore.

A dilemma is "a situation in which a difficult choice has to be made between two or more alternatives, especially equally undesirable ones." (New Oxford American Dictionary)

We are hooked on low interest rates and the drug of cheap and easy credit. Maintaining low interest rates furthers that dependency and heightens the risk of overdose. The result would be a swift and renewed weakening of the U.S. dollar accompanied by the increasing effects of inflation.

On the other hand, raising interest rates more could trigger another credit implosion which could lead to deflation and a full-scale depression.

Doing nothing is an option. The problem with that choice is that the Fed is holding that ticking time bomb and don't know how long it will be until its world blows apart. The Federal Reserve is truly stuck between a rock and a hard place.

WHAT TO EXPECT NEXT
 

Don't trouble yourself worrying about who the next Fed chair will be. It doesn't matter. It is too late in the game for a quarterback change to have any meaningful impact. This includes speculation that Judy Shelton might get nominated again. Yes, she is an excellent choice; and, for all of the right reasons.

Unfortunately, that would expose the game of chess being played by the Federal Reserve and its owners. (see Federal Reserve - Conspiracy Or Not? and Federal Reserve vs. Judy Shelton)

The worst possibilities come after something big happens. The Federal Reserve and the U.S. government will work together to stave off any possibility of loss of control. Which means that everyone - investors,  traders, citizens, communities - will be subject to a host of new economic and monetary regulations, restrictions, executive orders, etc.

It will be like nothing we have seen in the past and beyond anything we can currently comprehend. (also see Bond Investors To The Fed - "Not This Time")

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Bond Investors To The Fed - "Not This Time"