The Fed’s uncertainty doesn’t scare markets

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Fed’s aspect and market response

The market liked what he heard from Jay Powell and Federal Open Market Committee yesterday. No one was doing the carthills, but the stocks that enjoyed a hard day before the statements and press conference were further up, though the enthusiasm at the end of the day was somewhat reduced. The yield of the treasury has decreased-two years three base points, then by 10 years by one. A dovish meeting, then?

Not really. It is easy to imagine a world where investors heard what the bank had said yesterday and it didn’t like it. Committee Has reduced its aspect for growth Meanwhile, it has increased its view for unemployment by a hair and its inflation as the point of inflation has also pushed. There are medium numbers as presented as fed summons, aerogoli has been associated by unheined:

There is a word for this kind of thing and it’s a bad word: stagnation. Fed does not predict a bad case of the Big S, but still, the expectations are trending both sides of the central bank order. And Fed was clear about the cause of the Fed: the intense reduction in the feelings of investors, businesses and consumers spread largely by the principles of the Trump administration, especially by concern about tariffs.

Yes, the projection of interest rates was the same. However this projection is average, and it hides it to move towards strict principles. The “central trend” expectation for the three highest and lowest distinct estimate and the policy stands at 3.6-4.1 percent to 3.9-4.4 percent. It’s nothing. At the press conference, Powell paid attention to the growing uncertainty of the committee members about their estimates – uncertainty that was not only higher, but also infected and almost completely slow and higher inflation. Below the Fed Committee members have unemployment rates (compared to historical tihasik level) and have a chart of uncertainty and which direction they put in what direction they put:

All of this is a bit ghostly. So why the reaction to the unchanged market? There are several possibilities:

• Fed Bazaar had already provided a message received. The market knew that policy concerns have increased and the risk of inflation has increased.

• It was relieved that inflation raised by the Fed tariff did not really show his teeth at risk. Powell took a melodious melody, emphasized that if the expectations of long-term inflation were under control, it could be appropriate as long as the tariff-operated price increased. This is not a central bank that is looking for the executive branch to fight.

• For good news after a month of injury, the Maria Market has decided to draw his attention to the exclusion of everything else in unchanged interest estimates.

We have left the readers to determine their own weight between these three.

Cute

Fed surprised the market by announcing a dramatic recession at the speed of quantitative energy yesterday: Balance Sheet per month to change $ 5 billion in $ 5 billion from permission to allow securities. It is not surprising that the QT is coming to an end; By Maximum ArrangementWe are close to the “adequate” fed goal, but not abundant, the reserve of the bank.

Most of the last year’s forecasts suggested that the QT will probably end in the first half of the year. The image has been changed since then – within a few minutes of the FOMC meeting, Fed Governors have been considering the end of the plan, if the Fed Governors have “swinging in reserves in the months related to Debt and Ceiling.” Nevertheless, we talked to analysts before the meeting suggests that sunset will begin in May, not March, in May.

Yesterday, the chair Powell said that the recession was part of the normal course of the QT and did not reflect an concern over Debt’s ceiling. This is a separate message of January meeting notes. And this national concern will be equitable: Debt ceiling, or its limits to fund the ongoing deficit in the United States, were re -established after two years of suspension earlier this year. The Treasury net cannot issue new debt unless the debt limit is raised or suspended again. Instead, it is spending his $ 414bn account in Fed.

The clock is ticking. According to Bridge Khurana in Wellington Management, the treasury with the new tax revenue is about to move out of money this summer, possible August. After that, the Treasury will take ”Unique“To prevent the US government from default.

Congress will probably increase the debt ceiling before it happens – though it will be almost around the political theater. After that the new debt will have to be issued to rebuild the treasury. If it matches the QT, the federation will be doubled on the fluidity of the financial system that wants to avoid, the BNP transport chief US rate strategist Gunit Dhingra says:

Treasury adds liquefaction when its cash balance is moving down [banking] The system. But when the treasury rebuilds his cash balance [by issuing more Treasuries]That money returned from the banking system to the Treasury Fed account. It draws fluidity from the banking system. The QT system is also taking fluency.

Treasury issued a new debt in 2022 when the QT started in full swing. However, there were more sources of fluidity and liquidity at that time (such as funding in the opposite re -opening program). If a burst of QT and the new treasury issuance happens at the same time, a liquidity crunch can threaten.

Welcome news for the downturn market. Equity praises the fluid. And, although the impact of QT and Kiwi on the treasury yield is probably small, equal to the end of all the other cities, the treasury yield should be reduced somewhat.

We are happy to take Powell to his words. However, it is true that the slow cuT capital heels and the financial system will be somewhat stressed when there is exciting summer. Some Republicans are focusing on the national debt, while most Democrats are looking for ways to go back against Trump. As soon as the Congress decides what to do about the Debt Ceiling, it increases the risk of financial binkmen. It is best to take risks from the table wherever you can.

(Repetition)

A good reading

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