Is The Fed Pushing Too Hard?
It may seem like a rhetorical question but Citi's credit stretgy team fears that the Fed may be pushing a bit too aggressively at this stage. The chart below shows monetary policy (defined as the funds rate and the Fed's balance sheet) vs. a "market health" index comprised of economic factors, systemic risk metrics, and valuation metrics. Historically the two have tracked well, but not recently. The health index is firming, but policy is getting easier, not tighter. Is the Fed out of its depth here, or do they know something we don't?