Of course markets are closed today for the MLK holiday–but after the last week or two a breather is likely welcome.
Friday the 10 year treasury closed at 1.77%–down from the high of the week at 1.81%, but right at the same level as last weeks close.
Economic crosscurrents are strong—weak retail and falling consumer confidence, yet hot inflation.
The next few months will be interesting as the FED tries to taper QE, then raise interest rates and finally run off the balance sheet. 2022 will be a very interesting year!
Since this is likely to be Powell’s last term, don’t estimate the chance of Paul Volcker’s approach to inflation…
The Fed is truly between a rock and a hard place. To quote the great Iron Mike Tyson:
“Everyone has a plan until they get punched in the mouth.”
I’ll take the “Under” on Fed rate hikes in 2022 and 2023.
I definitely agree that the Fed, after tapering off to zero buys of Treasuries and MBS, will not have as many rate increases as people are predicting. Also, such increases will pause about two months before the Senate/House elections. The Fed has become politicized and, with our country’s very divided partisan political state and the unknown results of the mid-term elections, the Fed will want to keep a low profile. Finally, running off the balance sheet in 2022, is a highly unlikely prospect. If you think otherwise, I have a bridge I want to sell you.
Because of this and because I have a high cash position, I’m starting to doubt that rates will zoom higher anytime soon and I should scale into preferreds/baby bonds sooner rather than later. Quite honestly, I’m not sure what to do.
Thanks for all your work Tim. How long will it take for the fed to invert the yield curve this hiking cycle? My best guess would be late ‘23 to late ‘24. A lot will depend on the demand for US. long bonds after the fed stops buying. Foreigners are still buying our long bond especially Europe & Japan that has rates lower than ours. Time will tell. ATB