FOMC Skips & Curves Adjust

Volcker what a legend

As we suspected J Powell and the FOMC kept rates unchanged in the Fed Funds and has now joined the rest of the global central banks in their new regimes of skipping to then wait and see. For those that don’t know, that is the one and only, the legendary Paul Volcker with stogie and all in the pic above. We know the FRB had its work cut for it post Burns in the late 70s and Volcker manhandled interest rates like nobodies business…Burns should have raised rates to double digits well before 1980, but they failed and Volcker had his work cut out for him, so this pic immortalizes his legacy for us!

Anyhow, we know today’s FOMC move is going to frustrate the global bond investors because with this new regime change, comes massive bond market uncertainty as to the general direction of rates vs the underlying fundamentals. So what do we know?

1. We know that inflation is falling and falling fast CPI cratered from 4.9% yoy last month to 4.0% this month and probably down near the low 3s next month

2. China has cut their RRR and SLF rates and will most likely cut the MLF this week as well

3. Yields have gapped higher in the US front end playing catch up to the now persistent higher for longer mantra is in place

4. We know liquidity is still ample and perhaps this is why the FRB is inclined to keep rates elevated

5. US debt ceiling is going to go parabolic and the FRB will have to be there to mop excess debt up and will be mindful of raising rates too far knowing what’s coming down the pipes