Here Is The Big Problem As The Global Economy Rolls Over
Here Is The Big Problem As The Global Economy Rolls Over from King World News
TDC Note – Probably not a big problem, probably a small bump in the road that the Fed will paper over in…aanndd…it’s gone!!!
A day after the massive rally in stocks following Powell’s comments, here is the big problem as the global economy rolls over.
QT Still In Place
November 29 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: For a market that is so beholden to monetary policy and desperately wanting to know ‘are we there yet?’ in terms of ending the tightening, I only thought of this yesterday after Powell basically said we are. BUT, as long as QT is still in place, we really aren’t there just yet. Their balance sheet is still expected to shrink by $600b next year…
From a monetary standpoint we knew that 11 years ago we were certainly not in Kansas anymore. Now on the backside where policy is tightening, we can reaffirm that we’re still not in Kansas anymore. I include the chart below that captures about 20 years of the REAL fed funds rates from 1981 up until 2000. The beginning captures some of what Volcker did and I stop at 2000 to take out Greenspan’s beginning push to take the fed funds rate to 1% (negative real rates).
The mean real rate during this time frame was 283 bps. Of course there was no such thing as a ‘neutral rate’ up until last year but the Fed today basically considers it a real rate of 100 bps. In the mid 1980’s it was between 450 bps and 600 bps. In 1989 before the recession a year later the real rate stood at 517 bps. After Greenspan hiked rates sharply in 1994 it got to about 300 bps. In the late 1990’s it also was about 300 bps