"A sharp drop in asset prices would not necessarily be troubling to the economic outlook, said Dallas Fed President Rob Kaplan on Thursday"
In earlier interview Kansas City Fed President Esther George said asset prices may decline once the Fed starts to taper its balance sheet and that the U.S. central bank would have to “wait and see.” The aim of the Fed’s purchases over the past decade was to boost asset prices, she said, and there could be a “symmetric reaction” once the assets roll off."
[Bueller?]
So far, financial conditions have eased despite Fed interest-rate hikes. George said this was a reason she supported shrinking the balance sheet"
Unfortunately, *everyone* believes that unwinding the Fed balance sheet will cause a selloff in Treasury bonds and a rise in yields. It won't. The $20 trillion t-bond market doesn't care which fly is landing on the elephant's ass on any given day to sell a few drops of bonds back into the ocean. The bond market is priced off of inflation expectations which fall when monetary conditions are tightening.
As we see here already:
Don't try this at home...
"We're going to force global carry to RISK OFF and see what happens"
"Because we've only seen this movie two or three times already"
Which gets me to my next point about controlled demolitions:
They tend to be highly correlated across ALL risk asset classes...
"financial conditions have eased despite Fed interest-rate hikes. George said this was a reason she supported shrinking the balance sheet"
"A sharp drop in asset prices would not necessarily be troubling"
Just like 17 rate hikes circa 2007 wasn't troubling to Greenspan
Just like 17 rate hikes circa 2007 wasn't troubling to Greenspan
"asset prices may decline once the Fed starts to taper its balance sheet and that the U.S. central bank would have to “wait and see.”
Markets don't meet on FOMC schedules:
