The Fed Unwittingly Will Continue to Tighten

By Steve Saville

The Fed probably will implement another 0.25% rate hike this week, but at the same time it probably will signal either an indefinite pause in its rate hiking or a slowing of its rate-hiking pace. The financial markets have already factored in such an outcome, in that the prices of Fed Funds Futures contracts reflect an expectation that there will be no more than one rate hike in 2019. However, this doesn’t imply that the Fed is about to stop or reduce the pace of its monetary tightening. In fact, there’s a good chance that the Fed unwittingly will maintain its current pace of tightening for many months to come.

The reason is that the extent of the official monetary tightening is not determined by the Fed’s rate hikes; it’s determined by what the Fed is doing to its balance sheet. If the Fed continues to reduce its balance sheet at the current pace of $50B/month then the rate at which monetary conditions are being tightened by the central bank will be unchanged, regardless of what happens to the official interest rate targets.

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Still Easy After All These Years

By Kevin Muir

The other day I was listening to some hedge fund manager or market strategist making the bearish argument for risk assets. He went through his points and then finished with what he deemed as the final knife to the heart of the bulls – “to top it all off, you are now getting paid 2% in cash. We haven’t seen that level in years.”

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