Don’t Listen To The (Central) Bank? The Fed Is Only Tightening Their Target Rate, Not Unwinding Their Enormous Balance Sheet (Eurozone 10Y Yields Tank Nearly 20 Basis Points)

by confoundedinterest17

Don’t listen to the (central) bank.

The Federal Reserve has been jawboning about tightening monetary policy to combat inflation (that they helped caused in the first place. Throw in Biden’s/Congress penchant for spending like drunken sailors in port, and we have an inflation problem. Compounded by the fact that The Fed has not shrunk its balance sheet yet (white line fever).

The Fed never really unwound their balance sheet following the 2008 financial crisis, although they raised their target rate mostly under President Trump. But Covid-related monetary stimulus has not been removed yet, although they have raised the target rate to a lowly 1.75%. Home prices are still soaring (>20% YoY as of April). Housing prices are still soaring (>20% YoY as of April) because The Fed hasn’t reigned in their stimulypto yet.

We are primarily funded by readers. Please subscribe and donate to support us!

Despite their jawboning, The Fed’s target rate is now expected to peak at the December 2022 FOMC meeting at 3.382% implied rate (from Fed Funds Futures). Perhaps Powell and The Gang will illuminate us as to their updated plans on shrinking their enormous balance sheet.

With the ECB FINALLY raising their target rate and global growth slowing, we are seeing France and German sovereign yields declining nearly 20 basis points. Beleaguered nation Italy is down over 20 basis points. The US 10-year sovereign yield is down -6.4 basis points this morning,

Fear the talking Fed.



Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.