I'm overdue on updating the fed pivot indicator, and frankly it's showing we have arrived already
We are at the point where the fed would usually halt rate hikes and begin easing again
As they gear up for 75bp in a couple weeks, they would be knowingly blowing up the system
We are at the point where the fed would usually halt rate hikes and begin easing again
As they gear up for 75bp in a couple weeks, they would be knowingly blowing up the system
This chart is essentially proxy for the acceleration rate of interest expense for the US government, and has been a reliable indicator of fed pivot for 30+ years as the fed has ensured the US doesn't enter a debt death spiral
what is a debt death spiral? It's an increasingly large debt load, with ongoing deficit, that only gets exponentially larger as interest expense increases
The treasury has to issue more bills/notes/bonds to fund interest which drives up supply and can overwhelm demand
The treasury has to issue more bills/notes/bonds to fund interest which drives up supply and can overwhelm demand
thus increasing interest expense even more as yields increase and this spirals out of control, with the only way to make payments being issuing even more treasuries
For the past 33 years the fed has used monetary policy to ensure this spiral doesn't occur
For the past 33 years the fed has used monetary policy to ensure this spiral doesn't occur
To avoid this, the fed will need to pivot soon otherwise they risk having to do even more easing and monetizing of debt down the road
To keep this line 'inbounds' they need the middle of the curve to fall ~75bp between now and the 24th
To keep this line 'inbounds' they need the middle of the curve to fall ~75bp between now and the 24th
Or maybe they'll allow a brief spike above, and given the length of that chart, maybe 'brief' can be a number of months
But as far as what would be normal fed behavior, we're at the tightening limit for interest rates
But as far as what would be normal fed behavior, we're at the tightening limit for interest rates
The other thing to watch of course, is the net liquidity provided (the balance sheet view)
On that metric we still have a little further to go before we reach the previous two largest drawdowns which were 15% and 18% from their respective peaks
On that metric we still have a little further to go before we reach the previous two largest drawdowns which were 15% and 18% from their respective peaks
the 28th is what i meant to say above! not the 24th
Feel free to follow me on Reddit too guys, I actually first posted this chart there way back in January of this year (though I’m more active on Twitter now)
Cheers!
reddit.com
Cheers!
reddit.com
Also should point out I am forecasting a new record print on CPI this month, meaning the fed is really backed into a corner with the US likely being recession already
Another way the fed could get this back inbounds even with a big rate hike is to announce that July’s hike would be the last one for a while as they wait for more data
Market wouldn’t digest it as a pause but as a reversal and the middle of the curve could collapse down
Market wouldn’t digest it as a pause but as a reversal and the middle of the curve could collapse down
#CPI comes in hot!
I predicted 8.84% and it was 9.06% (0.22% error)
Rate hike expectations are now putting some probability on a 100bp hike
The fed is likely going to hike us even further into recession
GDP in a couple weeks will show we have officially entered #stagflation
I predicted 8.84% and it was 9.06% (0.22% error)
Rate hike expectations are now putting some probability on a 100bp hike
The fed is likely going to hike us even further into recession
GDP in a couple weeks will show we have officially entered #stagflation
Update:
They blew up the system, knowingly
They blew up the system, knowingly
Fed pivot indicator update:
The fed isn't worried about creating a debt death spiral apparently
Any inflation they manage to stop now will be simply be transferred to the future as the US government will eventually have to do yield curve control
See thread for explanation^
The fed isn't worried about creating a debt death spiral apparently
Any inflation they manage to stop now will be simply be transferred to the future as the US government will eventually have to do yield curve control
See thread for explanation^
Here's the update on interest expense if you missed it also:
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