There is something I've been thinking about all holiday-weekend long. Is the Fed's tightening already enough to send us headlong into recession (I've argued yes)...or do we actually need a whole lot more tightening to get us to that outcome? And is that what the yield curve has been telling us.
While we've already had the sharpest, fastest tightening cycle in history, some would argue rates should be double where they are right now. I've seen a few different "Taylor rule" formulations lately suggesting rates actually need to be at 9-10%, not the 4.6ish percent we are at right now.
If that makes you choke, or laugh, or roll your eyes (or want to sell everything), a somewhat less aggressive formulation is to simply compare the Fed funds rate with consumers' expected one-year inflation rate. But it still points towards the same conclusion! "Restrictive" policy means the Fed's rate is well above expected inflation, which just rose to 4.2% in the latest Michigan survey. As you can see, we are barely above that, and certainly not at levels the Fed itself has historically considered "restrictive," meaning, in other words, policy may still be too loose right now.
"If anything, the risk is that policymakers start to highlight the risk of an even higher terminal rate," wrote Aneta Markowska of Jefferies a couple weeks ago. And sure enough, as our Steve Liesman keeps pointing out, the market is finally pricing in the level Fed officials have said they want to take rates to (above 5%). In fact, just this morning, December futures for the Fed funds rate have hit a new all-time high of 5.15%, and "for the first time," Steve reports, "we are trading above the average Fed forecast for year-end of 5.13%."
This all appears to derive from the strong January economic reports we've been getting in recent weeks, since the last Fed meeting. The 10-year yield this morning is at fresh year-to-date highs, just shy of 3.93%.
Why the stock market is largely shrugging this off remains a mystery to me, although maybe we're seeing some catch-up today. The Dow is down almost 500 points as of this writing, and that's not just because of Home Depot's post-earnings weakness; its percentage drop is virtually the same as the S&P 500's 1.4% decline.
Another leg down in the market is pretty much the only way I can make sense of this whole landscape. That said, it's not the market's job to conform to what I think is happening in the world, obviously. And as a very wise, very successful investor warned me over the weekend, its recent rally should not be taken lightly:
"After 50 years of investing, I still believe the stock market is the best economic forecaster," he told me in an email. Which makes the next few weeks of market behavior--to either confirm or reverse the year-to-date trend--all the more crucial.
Tidak ada komentar:
Posting Komentar