Waiting on the Federal Reserve

With equity markets trading higher today it seems like investors/traders are looking for a dovish spin from the Federal Reserve today at 1 pm (Central time).

With the last soft jobs report, Covid 19 Delta and now Evergrande in China the chair has lots of excuses to put a dovish spin on a taper.

Interest rates have remained firm around the 1.30% to 1.35% area–obviously this crowd is not looking for any surprises in the tapering announcement.

Honestly it would be great to have a date to ‘hang our hat on’ relative to the taper—I hear the talking heads continue to harp on an interest rate hike immediately after the taper is complete–what crap!! We can’t even see next month let alone 2023–there is one hell of a lot of ground to cover before we get to rate hikes.

25 thoughts on “Waiting on the Federal Reserve”

  1. I think the impending debt level increase issue is much more important than anything the Fed might say today. Both the Dems and the GOP have their heels dug in. One side will have to give-in or the debt markets will be chaotic until the matter is resolved. I’m thinking credit spreads might widen dramatically if this problem goes to the 12th hour before it’s resolved. any thoughts…….

    1. Randy,
      I agree with you that the debt level increase theatre will be a big deal.

      I’m not sure the media is explaining the issue correctly. We have the debt (much of it generated with the tax cut bill of the R’s and the COVID response) and the ‘debt limit’ conversation is purely an administrative issue on whether we’ll pay the bills. The Dems can and will remove the issue with a line in the reconciliation bill later this month.

      The last time we were shutting the government down with this theatre (eight years ago), I was refinancing my mortgage and I got a killer rate. (of 2.5%)

      1. “I’m not sure the media is explaining the issue correctly.” : That’s because the media and big tech are corrupt and overwhelmingly partisan.

        “We have the debt (much of it generated with the tax cut bill of the R’s and the COVID response)” : Consider the following…

        – Presidents can have a tremendous impact on the national debt. They can also have an impact on the debt in another president’s term. When President Trump took office in January of 2017, for the first nine months of his presidency, he operated under Obama’s budget which didn’t end until September, 2017. So for most of a new president’s first year in office, he isn’t accountable for the spending that takes place.
        – Obama holds the title for growing the national debt the most dollar-wise. In total, debt levels increased by $8.34 trillion (70%), from $11.9 trillion in 2009 to $20.2 trillion in 2017.
        – Obama instituted tax cuts that added $858 billion to the debt.
        – One thing about a president’s economic policy that often isn’t considered is that the president does not operate in a vacuum. The chief executive submits the budget, but fiscal policies are ultimately set by Congress through the budget process. This can lead to conflict between a president and Congress. One of the specific points of conflict is the debt ceiling.

          1. Actually budgets ARE extremely important here.

            So does the politics of QE. 8 trillion in stimulus. 1.2 in pork. Another 3 to 4 trillion thrown in…. Ignore it at one’s one peril!!

            1. Half a trill for NEW TACTICAL nuclear weapons. Who wins with this?
              Supported by Tr #%& and Bi@$^. (I do not want to be openly insulting to political views).
              Both my senators have emailed me back saying it will be passed so shut up. I have it in writing from their office, one is on the rah-rah committee.as pom-pom cheerleader here in MO.)
              Party on Party Men!

          2. David,
            When you figure out how to discuss the two intertwined subjects as presented above – by omitting relevant facts/figures; enlighten us.

            1. First of all, I don’t agree with any of the so called “facts” that you mentioned. As far as I can tell, it’s a bunch of Republican BS.

              Second, I don’t agree that there’s any intertwining between the debt blame game you are pursuing and the current debt limit standoff/game of chicken. The history and size of the debt has no relevance.

              Third, I see absolutely zero point in trying to argue it out here.

              Now if you have some stock picks that will benefit from a government shutdown, let’s hear them.

                1. Ya his raunchy comment of Republican BS did it for me. I would love to say more but won’t.

              1. David,

                First of all, not having sworn allegiance to any red or blue flag, I don’t speak “Republican BS”. Failure to engage in a facts/figures discussion leaves little to work with which IME, happens when some are introduced to relativity/reality.

                Second, all Presidents & Congressional participants are ultimately responsible for the country’s debt and related matters. They make the laws. They authorize the spending. The buck stops with them, period. Do your own homework. Here’s somewhat of a head start: https://www.whitehouse.gov/omb
                Little hard to spin this source, aye?

                Third, arguing is the fastest path to 100% loss of productivity, IMO. Debating facts/figures has been encouraged here for many years, however, with this statement that you made, I can see why you’re moving along: “The history and size of the debt has no relevance.”. Leaves one with a wrinkled forehead, I must say, because I very much worry about how ALL of our children, grandchildren, great grandchildren and those generations yet unborn – will suffer under this irresponsible and crippling government debt.

                “Those who don’t know history are doomed to repeat it.”

                “The only thing necessary for the triumph of evil is for good men to do nothing.”
                ― Edmund Burke

                Picks? Sure, glad to help you out with that. What are we talking, common stocks, preferred’s, ETD? Just a few thoughts in no particular order or grouping: HD, MCD, MSFT, JNJ, LBRDP, AIG-A, CHSCM, KREF-A, TDS-V, AQNB, KTBA, SREA.

                Have a blessed day. GLTA.

            2. A4I, the key word is relevant. Your figures (if accurate) and comments seem to reflect a policy debate not actionable investment strategy. Here’s something that demonstrates what I mean:

              “The Federal Open Market Committee directed the Open Market Trading Desk at the Federal Reserve Bank of New York to conduct overnight reverse repurchase agreement (ON RRP) operations with a per-counterparty limit of $160 billion per day, effective September 23, 2021. The increase in the per-counterparty limit from the current level of $80 billion per day helps ensure that the ON RRP facility continues to support effective policy implementation.”

              I think this will drastically decline soon after a debt ceiling raise. Treasury will be coming to market in a big way as soon as that happens. That will soak up the RRP and signal the possible beginning of taper. Regardless of what should be, this is what IS.

              1. reverse repurchase agreement (ON RRP) is to solve short term t-bill supply problem caused by treasury not issuing.

                It has a secondary feature of compressing long term 20+yr treasury rates. 20+yr treasury are relatively cheap and plentiful. Financial institutions requiring pristine collateral for deposits can now purchase 20+yr treasury’s and use the (RRP) to create daily short term collateral meeting regulator requirements.

                Necessity is the mother of invention. RRP goes to 1.5-2T before we see it closed down.

    2. Praise the US government for enacting debt limit laws. Seems quite responsible. Using a government shutdown to create urgency around policy is tone def to the American tax payer.

      Reducing interest rates or enacting yield curve control seems prudent when you are trying to encourage lending (money creation). Expanding economy via job growth or creating new industry. Not so much when you realize the true reason is to reduce the cost of future debt service payments.

      How bad is the situation. Meaning when evaluating debt to gdp. America looks good compared to other G7 countries. Is the pace of debt growth sustainable no.

      Why it does not matter. US is the world reserve currency. What does this mean? Majority of commodities are priced in US dollars. Majority of world wide debt is priced in US dollars. Countries around the world need to purchase American treasuries (dollars) just to maintain trade. Banks require to maintain collateral (treasuries) for any dollar deposited or lent. When libor goes away and is replaced by sofr. Sofr is an American invention what do you think the derivatives market will be based upon (short term treasury – US dollar).

      Everything requires US dollars to operate. This causes dollar demand. To create dollars they must be lent. The monster must feed.

      Only thing I am worried about is the US dollar strengthening in relation to other currencies. This will be a wrecking ball operating in a glass house.

      1. The debt limit law may seem responsible, but if you look at history, it’s never worked as intended. It doesn’t make sense and should be repealed.

        Politicians of both (all) parties spend according to policy needs, and worry about the debt limit later.

        None of which has anything to do with the price of preferreds.

  2. You can’t raise rates ever again….look what happened last time they tried to go to 2%…..

    1. This may seem completely ass backwards but in order for the US to raise rates sustainably. US policy should focus on creating inflation within the economies of all its trading partners.

      Inflation will need to be contained causing rates to rise weakening the US dollar which will reduce foren debt service costs spurring further growth.

      From US consumer standpoint would be a non-starter as everyone enjoys cheap goods.

  3. Every single word Powell says is rehearsed and pre thought out. I doubt if there will be any surprises today. He knows that Wall Street listens carefully to every single word and he knows its his job to keep markets calm. I have listened to many many of his dog & pony shows and in all honesty they get a little boring.

    1. @Chuck P
      I think it’s a job requirement that these Fed chiefs are oblique, wordy and boring. This accounts for predecessors Yellen and Greenspan, too.

      1. Let’s see if there are the words “irrational” and “exuberance” mentioned in the speech…

        Filibustering the debt level increase is like playing Russian roulette with nuclear weapons….
        Though maybe the markets just know it is political theater and won’t fall 30% in the blink of an eye in the case of an actual default.

  4. Don’t You think it would be politically more acceptable to maybe a small rate hike to curb inflating bubble and inflation and keep buying government paper ?

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