Much More Than This Week (TRDKWTAD)

According to the recent release of the Federal Reserve’s projected forecasts, that’s it. It wasn’t one and done as Chairman Powell had initially indicated, this “midcycle adjustment” hits two. And that is it, at least if you believe the current calculations spit out by the Fed’s models.

It goes along with Powell’s blunt statement he made at the press conference on Wednesday broadcasting the second cut. The cut had already been superseded, big time, by events in money markets. Most people still believe that central banks take care of everything money, so to have such a mess show up right then was more than misfortunate from the policy perspective.

Officials are desperately trying to downplay, well, everything; beginning with any risks to the economy. There are none, the FOMC says in word as well as forecast. The economy is really strong and should be able to withstand these whatever cross currents and global headwinds. Out of an abundance of caution, one rate cut as insurance. OK, maybe two.

But that’s it. No more will be needed. They are drawing a line in the sand here.

And it’s getting embarrassing, getting pushed back each and every time. Before even getting to repo and fed funds, Powell keeps changing his story. For the record, he keeps changing his story about repo and fed funds, too. We’ll get to that in a minute.

First, you have to keep in mind how this year began. Last year it was all rate hikes, inflation, and boom. Early January, that changed to a Fed “pause” because, it was widely speculated, rate hikes had been the issue creating a little bit of unhelpful, mildly irritating uncertainty. Ending the rate hikes, therefore, ended the uncertainty.

Except, no, the “pause” didn’t accomplish anything. The negative trends got worse and in response Powell said, OK, but just one rate cut. A single and nothing more. But, just to show you how serious we are, even though nothing’s really wrong, we’ll abruptly end QT, too.

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Gary Anderson 1 year ago Contributor's comment

With primarily treasury bonds and haircutted private bonds being used, what is causing bad repo collateral? It would be interesting to find out!