**Even If Jerome Powell Is Successful, We Still Lose**
Even If Jerome Powell Is Successful, We Still Lose
_Authored by Jeffrey Snider via RealClearMarkets.com,_ (https://www.realclearmarkets.com/articles/2023/07/07/even_if_jerome_powell_is_successful_we_still_all_lose_964549.html)
**In some ways it has been like two heavyweight sluggers battling it out over the course of an extended bout,** exchanging one haymaker after another. With each monstrous blow, the receiver is staggered temporarily only to reform and then unleash one of his own. Back and forth, back and forth until such time a winner will be declared - and we all _lose_.
I hesitate to elevate the Fed and its rate-hiking regime to the status of a serious challenger, though it qualifies for any short run period.
**Offering alternative money rates, the only real program policymakers have, they can influence the real champion, the bond market’s behavior. Somewhat.**
If you own or are thinking of buying a 2-year US Treasury note, you’ll pay closer attention than someone thinking, say, ten years to what money market rates are now and what they could be over those relatively short two years. Using its reverse repo and even to an extent interest on reserves (they’re all _excess_ nowadays), officials more directly impact all kinds of money rates.
**But where Alan Greenspan once believed (his “conundrum”) a direct line (series of one-year forwards) existed rigidly linking every maturity and yield from there on down to the long bond, history has proven time and time again it gets real murky really quick.**
Somewhere around that 2-year spot.
The fight began straight away, too, going back to the very day when Chairman Jay Powell abruptly decided in late 2021 “inflation” wasn’t transitory any longer. Whether politics or bad economics (using even worse Economics), the bond market disagreed it was ever inflation (recognizing the supply shock just like 2010-11).
**At first the contest featured more sparring than any true combat; the Fed increased its benchmarks as is its playbook to which bonds initially offered only token resistance.**
The curve very modestly inverted between the 2s10s spot from March 2022, though never much and only sporadically.
**Things heated up last June though, again,** it wasn’t yet a true heavyweight fight.
The punches became more intense, the Fed upping its rate hikes to 75 bps while inversions spread and deepened.
**The match finally got going in September and October when “something” happened which triggered the first big response from the champ.**
Beyond late October, the Fed kept punching but bonds (LT) weren’t budging; yields went sideways to lower even as the FOMC voted for higher.
They would respond, getting in a good one in February upon the release of the January payroll figures backed up by a rash of suddenly “hot” economic statistics. Policymakers fashion them into their strike: forward guidance declaring higher-for-longer.
**This was a simple yet effective tactic, tying any economic data that wasn’t downright awful to a “resilient” economy requiring ever-higher interest rates from the Fed.** And if any better-than-atrocious statistics were accompanied by any consumer price measure still better than 2%, the greater the punching power.
The hit landed squarely enough, forcing bonds back on their heels. Rates rose especially at the crucial 2-year spot and LT yields followed in somewhat stunned fashion.
It would not last long because within weeks bonds struck back with a massive swing of their own – the banking crisis. This immediately stunned officials into complete silence, even a pause in the rate hikes while at the same time market interest rates would plummet and completely ignore any further action from any central bank anywhere.
**This is, in fact, the whole basis for the conflict: what are interest rates?**
To bonds or anyone employing intuition and common sense, falling rates especially from a low start are _never_ a good sign. History has conclusively shown them associated only with the worst circumstances, those when deflation and depression have been widely acknowledged: the US in the thirties or Japan in the nineties, aughts, teens, and almost certainly the twenties, too.
But to Economists a central bank must raise rates to fight inflation. Never mind how during genuinely inflationary periods interest rates always go up on their own without any assistance, policymakers far removed from real monetary competence have instead attempted to fill that void with a bastardization of the mechanics.
**They believe that a fed funds target isn’t high or low on its own and instead should only be judged in relation to the so-called neutral rate.** If the Fed’s benchmarks somehow, someway find themselves above neutral, this would be “restrictive” and allow officials the ability to slow the economy (reducing demand for credit) and theoretically tighten against i…
https://www.zerohedge.com/markets/even-if-jerome-powell-successful-we-still-lose
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"content": "**Even If Jerome Powell Is Successful, We Still Lose**\n\nEven If Jerome Powell Is Successful, We Still Lose\n\n_Authored by Jeffrey Snider via RealClearMarkets.com,_ (https://www.realclearmarkets.com/articles/2023/07/07/even_if_jerome_powell_is_successful_we_still_all_lose_964549.html)\n\n**In some ways it has been like two heavyweight sluggers battling it out over the course of an extended bout,** exchanging one haymaker after another. With each monstrous blow, the receiver is staggered temporarily only to reform and then unleash one of his own. Back and forth, back and forth until such time a winner will be declared - and we all _lose_.\n\nI hesitate to elevate the Fed and its rate-hiking regime to the status of a serious challenger, though it qualifies for any short run period.\n\n**Offering alternative money rates, the only real program policymakers have, they can influence the real champion, the bond market’s behavior. Somewhat.**\n\nIf you own or are thinking of buying a 2-year US Treasury note, you’ll pay closer attention than someone thinking, say, ten years to what money market rates are now and what they could be over those relatively short two years. Using its reverse repo and even to an extent interest on reserves (they’re all _excess_ nowadays), officials more directly impact all kinds of money rates.\n\n**But where Alan Greenspan once believed (his “conundrum”) a direct line (series of one-year forwards) existed rigidly linking every maturity and yield from there on down to the long bond, history has proven time and time again it gets real murky really quick.**\n\nSomewhere around that 2-year spot.\n\nThe fight began straight away, too, going back to the very day when Chairman Jay Powell abruptly decided in late 2021 “inflation” wasn’t transitory any longer. Whether politics or bad economics (using even worse Economics), the bond market disagreed it was ever inflation (recognizing the supply shock just like 2010-11).\n\n**At first the contest featured more sparring than any true combat; the Fed increased its benchmarks as is its playbook to which bonds initially offered only token resistance.**\n\nThe curve very modestly inverted between the 2s10s spot from March 2022, though never much and only sporadically.\n\n**Things heated up last June though, again,** it wasn’t yet a true heavyweight fight.\n\nThe punches became more intense, the Fed upping its rate hikes to 75 bps while inversions spread and deepened.\n\n**The match finally got going in September and October when “something” happened which triggered the first big response from the champ.**\n\nBeyond late October, the Fed kept punching but bonds (LT) weren’t budging; yields went sideways to lower even as the FOMC voted for higher.\n\nThey would respond, getting in a good one in February upon the release of the January payroll figures backed up by a rash of suddenly “hot” economic statistics. Policymakers fashion them into their strike: forward guidance declaring higher-for-longer.\n\n**This was a simple yet effective tactic, tying any economic data that wasn’t downright awful to a “resilient” economy requiring ever-higher interest rates from the Fed.** And if any better-than-atrocious statistics were accompanied by any consumer price measure still better than 2%, the greater the punching power.\n\nThe hit landed squarely enough, forcing bonds back on their heels. Rates rose especially at the crucial 2-year spot and LT yields followed in somewhat stunned fashion.\n\nIt would not last long because within weeks bonds struck back with a massive swing of their own – the banking crisis. This immediately stunned officials into complete silence, even a pause in the rate hikes while at the same time market interest rates would plummet and completely ignore any further action from any central bank anywhere.\n\n**This is, in fact, the whole basis for the conflict: what are interest rates?**\n\nTo bonds or anyone employing intuition and common sense, falling rates especially from a low start are _never_ a good sign. History has conclusively shown them associated only with the worst circumstances, those when deflation and depression have been widely acknowledged: the US in the thirties or Japan in the nineties, aughts, teens, and almost certainly the twenties, too.\n\nBut to Economists a central bank must raise rates to fight inflation. Never mind how during genuinely inflationary periods interest rates always go up on their own without any assistance, policymakers far removed from real monetary competence have instead attempted to fill that void with a bastardization of the mechanics.\n\n**They believe that a fed funds target isn’t high or low on its own and instead should only be judged in relation to the so-called neutral rate.** If the Fed’s benchmarks somehow, someway find themselves above neutral, this would be “restrictive” and allow officials the ability to slow the economy (reducing demand for credit) and theoretically tighten against i…\n\nhttps://www.zerohedge.com/markets/even-if-jerome-powell-successful-we-still-lose",
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