Skip to main content

Markets are set to test Warsh - Edward Yareni - Financial Times

And financial markets might not co-operate with Warsh’s views. The problem with lowering the federal funds rate further from here, when the economy is already growing rapidly, is that it would increase the risk of financial instability, specifically a melt-up in the stock market that could be followed by a meltdown. Lowering the federal funds rate would further weaken the dollar, potentially reviving inflation and pushing bond yields higher.

Furthermore, at his likely first meeting as FOMC chair on June 16-17, the majority of Warsh’s colleagues on the committee might not co-operate in backing lower interest rates if inflation remains persistently above the Fed’s 2.0 per cent target. The US economy is likely to be booming then thanks to the fiscal stimulus provided by higher tax refunds in the coming months, resulting from legislation last year. Warsh could be one of the few dovish dissenters at his first FOMC meeting.

Markets are set to test Warsh 

Comments

Post a Comment

Popular posts from this blog

How The Economic Machine Works by Ray Dalio - Bridgewater

Source: How The Economic Machine Works by Ray Dalio
Post a Comment
Read more

Letter: Why the geopolitics of international currency choice matters - FT

This coincidence must alert readers that a tempest is brewing on subjects noted: lurking inflation, increasing debt, suppressed interest rates and the shifting of hegemonic power.  There are only two important questions in investing that also apply to subjects impacting the future stability of the world — tell me why and tell me when.  Plender gives us the “why”, the ever-increasing “intolerable burden” of government debt and suppressed rates leveraging the global financial system. He gives us the tipping point.  What we await is “the when”, as in when do we know we have “tipped”.  Paul Hackett Madison,  NJ, US    Letter: Why the geopolitics of international currency choice matters
Post a Comment
Read more

Enough cool heads are pulling back from the brink - John Authers - Bloomberg

  Beyond the duration of the shock, we also need to monitor the impact on central banks and on the macroeconomy. Societe Generale’s Manish Kabra lays out the criteria as follows: An exogenous shock lasts beyond a week, but oil spikes usually peak in three months. That’s the timeline and only two things matter: 1) shock duration and 2) the Fed’s reaction function. Alternatively, Henry Allen of Deutsche Bank suggests that for a risk-off bear market to follow an oil shock, three conditions need to be met: 1. Large and sustained oil price spike: An oil price spike of at least +50-100% that is sustained over several months. 2. Hawkish policy response: The shock forces a sharp, hawkish pivot from central banks to fight the resulting inflation (e.g. 1979, 2022). 3. Broader macro damage: The shock is big enough to tip an already-slowing economy into recession.   Iran Oil Panic: Enough Cool Heads Are Pulling Back From the Brink - Bloomberg  
Post a Comment
Read more