Jimbo Posted February 13, 2022 Report Share Posted February 13, 2022 THE GREAT FED TRICK..... BEING BEHIND OF AND AHEAD OF THE CURVE AT THE SAME TIME The FED is ahead of the inflation curve...as it created it. The Bond Market is behind the curve as it has not reacted appropriately to inflation yet. Why is this the case????? The Bond market should have sold off much more strongly ages ago....... Well there is an explanation........ Because the FED is PRETENDING that it also is BEHIND the curve but will be AHEAD of the curve shortly. I.e. QE now BUT QT shortly..... A very neat Shrodingian trick indeed. Keep the market focused on QT (which right now is purely imaginary) while you keep on printing is the current FED plan. Remember M2 has gone up 40% over the last 2 years. Thats 40% of inflationary potential ..we have seen only 7% so far. Link to comment Share on other sites More sharing options...
DrStool Posted February 13, 2022 Author Report Share Posted February 13, 2022 The reason that the bond market hasn't sold off more than it has is that the Fed has been buying directly 40% of new supply and financing another 45-60%. That leaves only 0 to 15% of new supply that must be absorbed by the market. Some bond managers must buy bonds, so that's been enough to absorb the new supply that the market must absorb to keep prices stable. That ended in August 2020 when the bond bear market began. Inflation is irrelevant to bond pricing. Supply and demand drive prices. Fed printing either was, or funded, the lion's share of demand. As the Fed goes to zero QE, the rise in bond yields from here will be breathtaking. Fed Gets the Inflation It Wanted, But Wait There’s More! Link to comment Share on other sites More sharing options...
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