Yeah the video seems confusing to me as well. The 2-10 yield inversion seems likely short term, but I can’t see this Fed starting monetary easing immediately in response, before they even begin to tighten. Doesn’t make sense to me either what this video is stating. If they did start immediately easing = to negative rates? this would shock everyone and I just don’t see that type of policy change happening just because we have yield curve inversion. I could see them later in the year or next year reversing course but only after substantial increases in the Fed funds rate.
I don’t think he is being clear about the short vs mid term. He expects the April and probably May interest rates to increase as expected, but by then the yield will be inverted so the fed will switch from a hawkish to dovish tone in May or June and then the markets will spike up a ton, because everyone is pricing in 7 rate hikes this year, so fewer rate hikes means more upside.
Yield curve inversion always leads to monetary easing. Question. It seems that the Fed has telegraphed it’s intentions to raise the fed funds rate, and the bond markets have responded in advance of their moves. Isn’t it more likely that the Fed will raise rates to meet the market expectation already priced in, i.e. to get towards the 2 year yield. Your video implies the fed will start easing before it even starts tightening. I don’t see this happening. Especially since right now they have nowhere to go but to negative interest rates and a Fed dedicated to lowering inflation. Do you think the Fed will not tighten in May and June, 1/2 points since the yield curve has or will invert? I’m confused by your thinking obviously. Let’s assume the yield curve inverts in the next week or two. Do you really believe this is the start of Fed easing as your video implies? I can’t see it happening that way.
Asked a different way, isn’t it more accurate to say the Fed will continue to tighten first this year, then be forced to reverse course either later this year or next year? Or are they going to shock everyone and go straight to easing immediately? I could see some tightening and a reversal, but the video implies the Fed is done tightening right now due to yield curve inversion so the video is not clear or I strongly disagree with the projection.
I am confused and I think I’m not the only one. You state in the video we are at the end of a tightening cycle, but in fact it has just gotten started with a .25 increase. It sounds like you are saying the fed is going to give up right when it gets started? (assuming there is a yield curve inversion).
Well the title of the video is “Inverted yield curve ALWAYS leads to monetary easing” which is why it’s confusing. And no sorry, unless we do have a recession, the Fed will NOT be easing in a few months. They may slow down the pace of rate increases, but that is definitely not to be confused with easing. Outside a recession, I see ZERO chance that the Fed eases in a few months. Either way it’s unnecessarily confusing.
@Charles Callaghan For the benefit of everybody, could you share some data that shows inverted yield curve does not lead to easing and what Peter outlined has absolutely ZERO chance of happening?
Great remarks here from lots of confused folks, including me. Care to clarify your thoughts, Peter? How can the Fed be ending tightening if they barely started it?
Please factor in the QT – Fed actively selling assets which reduces credit, not just the Fed overnight rate. The Fed didn’t have the massive balance sheet in the 1970/80s that it has now. We are looking at .50% hike in May and possibly the start of QT. As long as employment holds up (a big if), the Fed is strong on fighting inflation with rate hikes and selling treasuries and MBS. Don’t fight the Fed!
I think QT has been happening for awhile now, asset purchases have been reducing since I think November time frame. This is in itself tightening. The hawkish comments from the FED back then stated clearly that asset purchases would reduce to zero and then interest rates would rise. I think we have been in a tighten8mg cycle for almost 6 months now. I definitely see another couple of rate hikes coming but this has been already priced in. Remember the market is forward looking. Therefore if this has been priced in and now the market sees an inverted yield curve it would expect easing in the future from the FED. This I think supports Peter’s thesis.
I personally never believed their would be 7 rate hikes. I agree central bankers are not idiots. This was all designed and executed by the central banks. Once again I have to point out that it was the FED that said they had a 2% inflation target and we got 8% actual inflation. Like you said they are not idiots and they knew their asset purchases along with weak monetary policy would create high inflation. But how can you say we are getting toward the end of the tightening cycle? They just began it! I guarantee the fed will not lower rates from here going forward. I always said it would be minimal 25 basis point increments. Regardless of what any FED president comes out to say to spook and manipulate the market there will be no 50+ basis point rate hikes. I previously said the FED would make a rate hike in March of 25 basis points and market would go crazy over it. I was absolutely right!
I previously had a subscriber comment that I do not understand macroeconomics a few months back. Particularly, as to why oil demand is driving inflation instead of FED policy (i.e. asset purchasing). Once again I have to mention the FED only allows us to know the MINIMUM of assets they purchase, not the ACTUAL! Basic economics will tell you more money in the system weakens any currency. And what have all central banks around the world been doing?
The US alone has spent nearly 4 trillion dollars fighting COVID. I say fighting very lightly. That kind of money over a 2 year period is unprecedented. Was it warranted??? And is it over???
Must admit that I’m very disappointed of Peter and this site. As a paying member, it is disrespectful to ignore so many confused paying customers who are asking for clarification.
If you say the fed is done “tightening”, why is there continual news they expect to raise interest rates at least six times in the coming year?
Yeah the video seems confusing to me as well. The 2-10 yield inversion seems likely short term, but I can’t see this Fed starting monetary easing immediately in response, before they even begin to tighten. Doesn’t make sense to me either what this video is stating. If they did start immediately easing = to negative rates? this would shock everyone and I just don’t see that type of policy change happening just because we have yield curve inversion. I could see them later in the year or next year reversing course but only after substantial increases in the Fed funds rate.
I don’t think he is being clear about the short vs mid term. He expects the April and probably May interest rates to increase as expected, but by then the yield will be inverted so the fed will switch from a hawkish to dovish tone in May or June and then the markets will spike up a ton, because everyone is pricing in 7 rate hikes this year, so fewer rate hikes means more upside.
He stated in 8:47-9:00 that the Fed turning dovish is still a few months away.
Yield curve inversion always leads to monetary easing. Question. It seems that the Fed has telegraphed it’s intentions to raise the fed funds rate, and the bond markets have responded in advance of their moves. Isn’t it more likely that the Fed will raise rates to meet the market expectation already priced in, i.e. to get towards the 2 year yield. Your video implies the fed will start easing before it even starts tightening. I don’t see this happening. Especially since right now they have nowhere to go but to negative interest rates and a Fed dedicated to lowering inflation. Do you think the Fed will not tighten in May and June, 1/2 points since the yield curve has or will invert? I’m confused by your thinking obviously. Let’s assume the yield curve inverts in the next week or two. Do you really believe this is the start of Fed easing as your video implies? I can’t see it happening that way.
Asked a different way, isn’t it more accurate to say the Fed will continue to tighten first this year, then be forced to reverse course either later this year or next year? Or are they going to shock everyone and go straight to easing immediately? I could see some tightening and a reversal, but the video implies the Fed is done tightening right now due to yield curve inversion so the video is not clear or I strongly disagree with the projection.
I love when you’re draw a heart at the end of the video. Here’s one back to you <3
Thanks Peter. So far the recovery in the SPY has repeated 2018/2019; the SPY is up 12% from the bottom after 5 weeks, just like 2018/2019.
I am confused and I think I’m not the only one. You state in the video we are at the end of a tightening cycle, but in fact it has just gotten started with a .25 increase. It sounds like you are saying the fed is going to give up right when it gets started? (assuming there is a yield curve inversion).
He stated in 8:47-9:00 that the Fed turning dovish is still a few months away. @Ron Gregory
Well the title of the video is “Inverted yield curve ALWAYS leads to monetary easing” which is why it’s confusing. And no sorry, unless we do have a recession, the Fed will NOT be easing in a few months. They may slow down the pace of rate increases, but that is definitely not to be confused with easing. Outside a recession, I see ZERO chance that the Fed eases in a few months. Either way it’s unnecessarily confusing.
@Charles Callaghan For the benefit of everybody, could you share some data that shows inverted yield curve does not lead to easing and what Peter outlined has absolutely ZERO chance of happening?
Great remarks here from lots of confused folks, including me. Care to clarify your thoughts, Peter? How can the Fed be ending tightening if they barely started it?
Please factor in the QT – Fed actively selling assets which reduces credit, not just the Fed overnight rate. The Fed didn’t have the massive balance sheet in the 1970/80s that it has now. We are looking at .50% hike in May and possibly the start of QT. As long as employment holds up (a big if), the Fed is strong on fighting inflation with rate hikes and selling treasuries and MBS. Don’t fight the Fed!
I think QT has been happening for awhile now, asset purchases have been reducing since I think November time frame. This is in itself tightening. The hawkish comments from the FED back then stated clearly that asset purchases would reduce to zero and then interest rates would rise. I think we have been in a tighten8mg cycle for almost 6 months now. I definitely see another couple of rate hikes coming but this has been already priced in. Remember the market is forward looking. Therefore if this has been priced in and now the market sees an inverted yield curve it would expect easing in the future from the FED. This I think supports Peter’s thesis.
I personally never believed their would be 7 rate hikes. I agree central bankers are not idiots. This was all designed and executed by the central banks. Once again I have to point out that it was the FED that said they had a 2% inflation target and we got 8% actual inflation. Like you said they are not idiots and they knew their asset purchases along with weak monetary policy would create high inflation. But how can you say we are getting toward the end of the tightening cycle? They just began it! I guarantee the fed will not lower rates from here going forward. I always said it would be minimal 25 basis point increments. Regardless of what any FED president comes out to say to spook and manipulate the market there will be no 50+ basis point rate hikes. I previously said the FED would make a rate hike in March of 25 basis points and market would go crazy over it. I was absolutely right!
I previously had a subscriber comment that I do not understand macroeconomics a few months back. Particularly, as to why oil demand is driving inflation instead of FED policy (i.e. asset purchasing). Once again I have to mention the FED only allows us to know the MINIMUM of assets they purchase, not the ACTUAL! Basic economics will tell you more money in the system weakens any currency. And what have all central banks around the world been doing?
The US alone has spent nearly 4 trillion dollars fighting COVID. I say fighting very lightly. That kind of money over a 2 year period is unprecedented. Was it warranted??? And is it over???
Must admit that I’m very disappointed of Peter and this site. As a paying member, it is disrespectful to ignore so many confused paying customers who are asking for clarification.
Bummer