Is the Fed even tapering?

[Krugminator2]

Do you think the Fed is going to tighten monetary policy? Do you think they can tame inflation without crashing the markets?

Something no one really points out is inflation was 7% in 2021. Interest rates are still very low. Even if the Fed hikes rates and inflation comes down, real rates are still going to be negative for some time.

Not a prediction but an out of left field possibility is not only do markets not crash with rising rates but markets rocket to new all time highs and go parabolic because of how LOOSE policy still is with rising rates. I am not predicting that but I am literally the only person I can find who thinks that is a possibility. The consensus seems to be this is a bear market and will go much lower and you will see all the valuation charts and talk about rates rising and pricking the bubble. Things are rarely that easy and that obvious.

The returns for the Russell 2000 are negative over the last year. A lot of the froth from junk companies has gone out of market. The ARKK fund was done over 50% from its highs.

Very bearish sentiment now.

[Madison320]

Something no one really points out is inflation was 7% in 2021. Interest rates are still very low. Even if the Fed hikes rates and inflation comes down, real rates are still going to be negative for some time.

Not a prediction but an out of left field possibility is not only do markets not crash with rising rates but markets rocket to new all time highs and go parabolic because of how LOOSE policy still is with rising rates. I am not predicting that but I am literally the only person I can find who thinks that is a possibility. The consensus seems to be this is a bear market and will go much lower and you will see all the valuation charts and talk about rates rising and pricking the bubble. Things are rarely that easy and that obvious.

The returns for the Russell 2000 are negative over the last year. A lot of the froth from junk companies has gone out of market. The ARKK fund was done over 50% from its highs.

Very bearish sentiment now.

Yeah, I guess that's possible but for sure the bond market will crash.

This will be only the second time they tried to tighten monetary policy since they started this whole thing in 2009. Last time in 2019 they only made it to 2% before the bond market crashed so it makes sense that it'll crash before 2% since the debt is that much worse.

So maybe the bond market crashes and they resume QE and ZIRP before stocks crash and stocks never go down? I guess that's possible.

[Krugminator2]

Yeah, I guess that's possible but for sure the bond market will crash.

This will be only the second time they tried to tighten monetary policy since they started this whole thing in 2009. Last time in 2019 they only made it to 2% before the bond market crashed so it makes sense that it'll crash before 2% since the debt is that much worse.

So maybe the bond market crashes and they resume QE and ZIRP before stocks crash and stocks never go down? I guess that's possible.

What I think you (and everyone else) are missing is 2019 was a totally different set of circumstances. I wouldn't (and didn't on this forum) support tightening interest rates. From what I remember there were major liquidity problems with bank overnight lending around that time. I think policy was just about right and should have been slightly looser. Right now the Fed is extremely behind the curve and should hike rates aggressively and give aggressive forward guidance given how much money was added to the system in 2020.


Raising rates like they are is just making loose policy less loose. It isn't really contracting credit. It is still loose policy. And I guess because rates are rising it makes equities less attractive but there still is a flood of liquidity that has to go somewhere.

[Madison320]

What I think you (and everyone else) are missing is 2019 was a totally different set of circumstances. I wouldn't (and didn't on this forum) support tightening interest rates. From what I remember there were major liquidity problems with bank overnight lending around that time. I think policy was just about right and should have been slightly looser. Right now the Fed is extremely behind the curve and should hike rates aggressively and give aggressive forward guidance given how much money was added to the system in 2020.


Raising rates like they are is just making loose policy less loose. It isn't really contracting credit. It is still loose policy. And I guess because rates are rising it makes equities less attractive but there still is a flood of liquidity that has to go somewhere.

The liquidity problems came when the Fed started tightening. Not before. That's the problem.

[oyarde]

Something no one really points out is inflation was 7% in 2021. Interest rates are still very low. Even if the Fed hikes rates and inflation comes down, real rates are still going to be negative for some time.

Not a prediction but an out of left field possibility is not only do markets not crash with rising rates but markets rocket to new all time highs and go parabolic because of how LOOSE policy still is with rising rates. I am not predicting that but I am literally the only person I can find who thinks that is a possibility. The consensus seems to be this is a bear market and will go much lower and you will see all the valuation charts and talk about rates rising and pricking the bubble. Things are rarely that easy and that obvious.

The returns for the Russell 2000 are negative over the last year. A lot of the froth from junk companies has gone out of market. The ARKK fund was done over 50% from its highs.

Very bearish sentiment now.

At this point with the too little too late fed on interest rates I think its a given inflation will be unchanged this yr . It is also just as likely that markets go up as go down because there is very few other places for most people to put that money where they may get a return they think they are happy with . So the odds ought to be 50/50 best I can tell. Not very good odds though.

[Madison320]

The Fed just printed another 45 billion last week! They were supposed to be done now that they started hiking rates. Like I've been saying, I think things may already be breaking behind the scenes from the lack of liquidity.