Traders around the world are trying to figure out when the Fed “pivots” by reversing its tightening money policy measures.
They’ve been lead to believe that if the Fed pivots (most are confusing pausing interest rate hikes as a pivot), then all is well and risk assets can sigh in relief.
Not, so! I went over this in “Put Skew Pops as Dealer Gamma Turns Positive.” Even if the Fed were to pause, due to a recession or otherwise, it's not guaranteed to sustain a meaningful rally in equities.
It’s not even guaranteed if the Fed actually pivots and begins to cut rates and ends quantitative tightening.
The above chart overlays the GS financial conditions index YoY and the effective Fed funds rate.
What this is showing:
1: We are undergoing on of the sharpest increases in financial conditions on a rate of change basis.
I warned of sharply rising financial conditions BEFORE the Fed began tightening back in Dec. 2021.
2: Financial conditions remain very tight not only when the Fed pauses rate hikes but as they cut rates, too.
The Fed effectively solidifies recession fears by pausing rate hikes.
In a Congressional testimony, following the Great Financial Crisis, then Fed Chair, Ben Bernanke said the Federal Reserve does not forecast recessions as to doing so would create a self-fulfilling prophecy.
That is to say the Fed's hands are tied when giving accurate, objectionable growth projects because they may in turn create a recession.
This, too, is why I push back on the assumption Bernanke, Yellen, Powell etc don’t know what they’re doing.
“How can Powell say the economy is strong?” He has little choice. The Fed runs a psyop on the global financial system. All they have are tools of communication.
Read “Ghosts of 2018 Haunt with QT Looming,” as it will inform you as to when the Fed could begin to pause rate hikes as well as my indicator that shows when to buy bonds, gold and other interest rate sensitive investments.
In respect to Macro Strategist Pro Subscribers, the indicator will be left under the pay wall for some time.
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