Fed created another $94 billion, but hiked rates by 1/4% and promised to resume shrinking M0
Ben will be waking to walk the dogs in a few minutes. I slept well through the night, falling back into slumber after each of my old-man pee breaks. We had so much fun at the concert! I danced so much I could barely walk afterward! Good thing I skipped the running.
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So now I have time to compare the Fed's weekly data dump with last week's. The Fed added $94 billion of new cash to the global economy -- $60 billion via currency swaps with other central banks, and the rest via their new US bank emergency loan facility.
That means during the past two weeks they've created almost $400 billion in new cash, about $300 billion during the initial week of panic and about $100 billion during the second week of panic. Overall, reserve bank credit increased from $8.3 trillion to $8.7 trillion.
Nevertheless, on Wednesday the Fed announced it would increase short-term interest rates (paid by US banks on overnight loans between each other) by 1/4%, to 4.83%, and that it would continue sucking cash out of the economy at the rate of about $80 billion per month.
Circling around the obvious contradiction --> the Fed is supplying a bunch of emergency cash to US banks and international central banks, while simultaneously making it more expensive to borrow cash, while simultaneously sucking cash back out of the economy.
The increase in interest rates will further reduce the value of bank assets, while making it even more expensive for banks to finance their ongoing operations. But the emergency cash is helping insolvent banks to stay alive as their depositors run for the exits.
Definitely, the Fed is pulling in two opposing directions, but it feels like it must do both, it has to increase the cost of money and shrink the money supply to fight inflation, and it also has to provide emergency cash to keep the banking sector from spiraling into a wider panic.
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Perhaps more important than the week-to-week data dump and incremental increase in short-term rates was this --> the Fed resolved to take short-term rates a bit higher later this year, to 5.08%, and then hold at 5.08% until at least the end of this year.
The Fed also implicitly expects this bump-and-hold to cause a recession by the end of this year, although they don't say so out loud. The Fed forecasts unemployment of 4.5% at the end of this year, which would be a full point higher than December 2022, and would be a large enough increase to show that we had entered a recession.
So, if you know how to study the Fed's own document dumps, it is clear that the Fed expects to continue pushing up and then holding short-term rates above 5% until we enter a recession. It's right there in black and white, folks.
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The futures market predicts a different path for the Fed. The futures market thinks the Fed is now finished increasing rates, and that by August the Fed will have begun retreating by cutting rates. Do futures market traders not know how to read?
It's an age-old expression, "Don't fight the Fed," because the Fed has unlimited power to set interest rates and determine the amount of cash circulating in the economy. If the Fed tells you, "We're going to hike interest rates and then hold them above 5% until a recession starts," you should believe them and prepare for a recession by the end of this year.
But the Everything Bubble is still in the process of popping, there are still a lot of people who believe in it, and they're not willing to remove their chips from the betting table quite yet.
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If you knew, because you had a flawless crystal ball, that a recession would begin by the end of this year, what would you do to prepare, how would you behave differently?
Think about it.
-----
So now I have time to compare the Fed's weekly data dump with last week's. The Fed added $94 billion of new cash to the global economy -- $60 billion via currency swaps with other central banks, and the rest via their new US bank emergency loan facility.
That means during the past two weeks they've created almost $400 billion in new cash, about $300 billion during the initial week of panic and about $100 billion during the second week of panic. Overall, reserve bank credit increased from $8.3 trillion to $8.7 trillion.
Nevertheless, on Wednesday the Fed announced it would increase short-term interest rates (paid by US banks on overnight loans between each other) by 1/4%, to 4.83%, and that it would continue sucking cash out of the economy at the rate of about $80 billion per month.
Circling around the obvious contradiction --> the Fed is supplying a bunch of emergency cash to US banks and international central banks, while simultaneously making it more expensive to borrow cash, while simultaneously sucking cash back out of the economy.
The increase in interest rates will further reduce the value of bank assets, while making it even more expensive for banks to finance their ongoing operations. But the emergency cash is helping insolvent banks to stay alive as their depositors run for the exits.
Definitely, the Fed is pulling in two opposing directions, but it feels like it must do both, it has to increase the cost of money and shrink the money supply to fight inflation, and it also has to provide emergency cash to keep the banking sector from spiraling into a wider panic.
-----
Perhaps more important than the week-to-week data dump and incremental increase in short-term rates was this --> the Fed resolved to take short-term rates a bit higher later this year, to 5.08%, and then hold at 5.08% until at least the end of this year.
The Fed also implicitly expects this bump-and-hold to cause a recession by the end of this year, although they don't say so out loud. The Fed forecasts unemployment of 4.5% at the end of this year, which would be a full point higher than December 2022, and would be a large enough increase to show that we had entered a recession.
So, if you know how to study the Fed's own document dumps, it is clear that the Fed expects to continue pushing up and then holding short-term rates above 5% until we enter a recession. It's right there in black and white, folks.
-----
The futures market predicts a different path for the Fed. The futures market thinks the Fed is now finished increasing rates, and that by August the Fed will have begun retreating by cutting rates. Do futures market traders not know how to read?
It's an age-old expression, "Don't fight the Fed," because the Fed has unlimited power to set interest rates and determine the amount of cash circulating in the economy. If the Fed tells you, "We're going to hike interest rates and then hold them above 5% until a recession starts," you should believe them and prepare for a recession by the end of this year.
But the Everything Bubble is still in the process of popping, there are still a lot of people who believe in it, and they're not willing to remove their chips from the betting table quite yet.
-----
If you knew, because you had a flawless crystal ball, that a recession would begin by the end of this year, what would you do to prepare, how would you behave differently?
Think about it.