Dot Plot courtesy of the Fed, Annotations by Mish

Hawkish Fed?!

The following Tweets and discussion involve Joseph Wang (@FedGuy12) and Harvey Bassman (@ConvexityMaven) inventor of MOVE a bond volatility measure.

Need to add next to nothing on QT other than looking at it.

"Next month" discussion.

Then what? Baby step runoffs or actual selling?

Hawkish?
Would like @FedGuy12 to chime in on this.

Thanks

— Mike "Mish" Shedlock (@MishGEA) March 16, 2022

• Wang was a senior Fed trader, trading the Fed's QE program
• Bassman was on the opposite end. He invented the MOVE index, a volatility measure for bonds similar to the VIX index for stocks. 

Where's QT?

Yesterday we were discussing QT@FedGuy12 yesterday:

"I am getting a sense there will be a very aggressive steepening of the curve engineered by the Fed by very aggressive quantitative tightening."

That would have been "Very Hawkish". The Fed punted.

Stocks rallied, for now

— Mike "Mish" Shedlock (@MishGEA) March 16, 2022

Beware of a Very Aggressive Steepening of the Yield Curve by the Fed

Looking past tomorrow, what should everyone expect from the Fed?

Yesterday, I commented on expectations of two great (and I mean that sincerely) analysts in Beware of a Very Aggressive Steepening of the Yield Curve by the Fed

Q: Harvey Bassman: "Should the Fed want to engineer a steeper curve?" Bassman asked Joseph Wang.

A: Wang

• I am getting a sense there will be a very aggressive steepening of the curve engineered by the Fed by very aggressive quantitative tightening" 
• "The way that you touch housing is not by hiking the Fed Funds Rate. People do not borrow mortgages at the overnight rate. 
•  My guess is that if you do aggressive enough QT that it will bleed into the 10-year as well." 

Punt

Bassman replied "The Fed buying mortgages has pushed up home prices against millennials."

What we have is a Punt by the Fed. 

The Fed gives the large US banks free and easy profits for making more mortgage backed securities. #MBS pic.twitter.com/3hc5i9yZ8L

— Jason Burack (@JasonEBurack) March 16, 2022

I am quite certain the Fed does not want to upset the stock market or housing.

You can see it in the reaction today, albeit from very oversold conditions. 

Bullish, Bearish, Something Else?

Put me firmly on the side that the Fed will talk out of not two but four sides of its mouth at the same time.

This will widely be interpreted four ways.

1. Bullish
2. Bearish
3. Neutral
4. Something Else

— Mike "Mish" Shedlock (@MishGEA) March 15, 2022

I believe that was the correct call.

Bitcoin?

Was just listening to CNBC. Jeffrey Gundlach just said he preferred Bitcoin over gold for the short term.

— Mike "Mish" Shedlock (@MishGEA) March 16, 2022

Stocks Where To?

The Fed undoubtedly got the reaction it wanted by punting on QT.

Short term, hooray. 

Powell did a massive amount of cheerleading too. How many times did he say the word "strong" in the Q&A following the meeting? 

Anyone have a count?

Thanks to Wang and Bassman

Thanks to Joseph Wang, Harvey Bassman, and moderator Jack Farley for yesterday's excellent discussion.

Regardless of today's outcome, Wang and Bassman defined what "hawkish" really looks like. 

In addition, Bassman had excellent comments on viewing high-growth stocks like 70-year bonds. 

See Beware of a Very Aggressive Steepening of the Yield Curve by the Fed for an excellent video and actual quotes.

Most People Have No Idea How Much Stocks are Likely to Crash

I stick with my call Most People Have No Idea How Much Stocks are Likely to Crash QT or not.