Fed wishes to crush stock markets
The Fed is determined to break Wall Street’s torrid and unwelcome rally, a bear-trap variant if ever there was one.
Fed is openly irritated that markets have jumped the gun. It thinks investors have misunderstood the unscripted comments by Mr Powell as evidence of an early “pivot” in the interest rate cycle and a licence for fresh excess in tech stocks and frothy asset markets across the world.
It wishes to push up junk yield spreads and restore some Schumpeterian discipline to corporate finance. It wishes to tighten financial conditions as a mechanism for choking inflation.
It intends to accelerate the pace of quantitative tightening (QT) in September with $95bn of monthly bond sales. It intends to drain liquidity from the world’s dollarised financial system, and the rest of us can drop dead. Fight this Fed if you dare.
The effect will be overwhelmed once QT begins in earnest next month. That is when the real trouble begins.
Over the last three months M1 money has contracted in absolute terms, and has been falling at a double-digit annual pace in real terms.
Ambrose Evans-Pritchard Telegraph 24 August 2022
Kommentarer