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VIX (the original one) continues to slumber at below 13.50
Must say Powell’s droning on is having same effect on me. One ETF that tries to hedge market risk based on changes in the VIX, TAIL, is off about 46% since inception in 2017. A record even John Hussman must envy. Damn poor job hedging risk as well.
Sitting out a rainy day. Guess the FOMC minutes / press conference had a small, but positive impact on metals. Gold is inching towards $2,000. Silver has been much more profitable this year. Not a recommendation. Just an observation.
FED FUND rate hiked by +25 bps to 5.25-5.50%; bank reserves rate 5.4%; discount rate 5.5%. Discount Window use is up and that is being encouraged. More rate hikes are possible but at slower pace. Monetary policy is restrictive as the real fed fund rate is positive. No rate cuts in 2023, but may be in 2024 as inflation approaches +2% average target. Credit conditions have also tightened, an expected effect of Fed tightening.
QT continues for Treasuries at -$60 billion/mo, for MBS at -$35 billion/mo. QT may moderate when it's time to cut rates.
INFLATION is still too high, but headline inflation is down more than core inflation. Longer-term inflation-expectations are moderate. Pandemic and Russia-Ukraine war (economic) effects have normalized. The expiration of the safe grain-corridor deal has raised grain prices some, but that isn't a huge concern for now.
HOUSING, being rate sensitive, is affected as 30-yr mortgage rates are 7%. Existing homeowners don't want to move because of their low-rate mortgages, but supply of new homes is coming.
ECONOMY remains resilient and strong. Effects of monetary policy lag, but these days, there are also some anticipatory moves. The Fed staff doesn't see recession, but only a soft landing.
REGIONAL BANK situation has stabilized. The latest BANC + PACW merger is normal consolidation among the affected regional banks. But the Fed is keeping an eye on the situation.
Did Powell say that the FOMC expects inflation to go down to 2% only in 2025 or am I conflating with some other 2025 mention? Sorry, I did not take notes.
He did say that - inflation may be down to +2% average target only in 2025, but rate cuts may start as inflation approaches +2% (sometime in 2024, but not in 2023). So the cuts may start when inflation is between +2% to +3%, but he won't commit to a number. Moreover, he said that if the Fed waited to cut rates until +2% was achieved, then it may be too late and then inflation may go down to well below +2%.
That made sense. What I took from that and the entire presser is that FOMC is going to be patient but firm - both bulls and bears can reaffirm their narratives! The additional info I did not know and I got from the presser was that the Fed staff no longer see a recession they were seeing earlier, which should be +ve for the equity bulls' narrative.
Comments
Must say Powell’s droning on is having same effect on me. One ETF that tries to hedge market risk based on changes in the VIX, TAIL, is off about 46% since inception in 2017. A record even John Hussman must envy. Damn poor job hedging risk as well.
Sitting out a rainy day. Guess the FOMC minutes / press conference had a small, but positive impact on metals. Gold is inching towards $2,000. Silver has been much more profitable this year. Not a recommendation. Just an observation.
@Yogi - Thanks for the post.
FED FUND rate hiked by +25 bps to 5.25-5.50%; bank reserves rate 5.4%; discount rate 5.5%. Discount Window use is up and that is being encouraged. More rate hikes are possible but at slower pace. Monetary policy is restrictive as the real fed fund rate is positive. No rate cuts in 2023, but may be in 2024 as inflation approaches +2% average target. Credit conditions have also tightened, an expected effect of Fed tightening.
QT continues for Treasuries at -$60 billion/mo, for MBS at -$35 billion/mo. QT may moderate when it's time to cut rates.
INFLATION is still too high, but headline inflation is down more than core inflation. Longer-term inflation-expectations are moderate. Pandemic and Russia-Ukraine war (economic) effects have normalized. The expiration of the safe grain-corridor deal has raised grain prices some, but that isn't a huge concern for now.
JOBS market remains strong, unemployment rate remains low despite fed rate hikes.
HOUSING, being rate sensitive, is affected as 30-yr mortgage rates are 7%. Existing homeowners don't want to move because of their low-rate mortgages, but supply of new homes is coming.
ECONOMY remains resilient and strong. Effects of monetary policy lag, but these days, there are also some anticipatory moves. The Fed staff doesn't see recession, but only a soft landing.
REGIONAL BANK situation has stabilized. The latest BANC + PACW merger is normal consolidation among the affected regional banks. But the Fed is keeping an eye on the situation.
LINK
Thanks for sharing your notes