Loading ...With the Fed still talking rate cuts, the market responds more to weak data than to strength. Two-year Treasury yields dropped 16 bps this week to 4.53%. I’m skeptical that the economy is downshifting. But when it does, rest assured that bond yields will decline, as the market swiftly prices imminent rate cuts. And this inflationary bias in bond prices will work to sustain loose conditions, while underpinning economic activity and inflationary pressures.
It has been intriguing to watch a resilient gold price in the face of a bullish narrative of disinflation and booming securities markets. And then to see bullion break to the upside this week, as Fed officials blatantly disregard loose conditions and runaway speculative Bubbles. In the “old days,” the Fed would take note of such unmistakable manifestations of overly accommodative monetary policy. The fixation these days is on the next inflation data.
The Truth is there will be a huge price to pay for all the craziness. Powell and Fed officials repeatedly assured us that they had learned from history. They understood the risk of resurgent inflation in the event of premature loosening of monetary policy. But that’s exactly what they’ve done. Sure, they can contend that they have held firm with a “restrictive” policy rate. But the Truth is they orchestrated a dovish pivot and attendant dramatic loosening of conditions. Plain and simple: they stoked a historic super-cycle market speculative blowoff. And they apparently cannot refrain from more stoking.
P.S.=they stoked a historic super-cycle market speculative blowoff.
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