The Market: Fed Put Engaged

Discussion

Chair Powell was in pure “Fed Put” mode in his appearance today. Not only did he bring out old faithful - nonsense poetry about how this inflation episode is principally due to COVID-related supply chain disruptions and thus the Fed is likely to engineer a soft landing - he went on at length about how the Fed is a great crisis responder, monetary policy can act quickly, and the Fed keeps watch over financial stability.

Absolutely no surprise at this dovish commentary given what has happened to rates lately. The Fed thinks financial conditions are sufficiently tight - as stated very specifically by Governor Waller at The Economic Club of New York here - and they do not want another round of tightening akin to last August-October.

Equities are chopping around here a bit in the wake of Powell’s comments, but they are setting up to go vertical into the close. Why do I say that? Because IG CDX moved down decisively to lows of the day during Powell’s comments and continue to hold those lows. And not only that, USD is down -53 bps as I type, BTC is up, UST 2s are back below 470, and UST 30s have come down from 457 this morning to 452 as I type.

Don’t Fight the FEDeral Government.