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FOMC Scenarios And What's Priced In
While Fed officials are at pains to point out that their two policy tools (asset purchases and rates) the markets continue to link them and the latest increase in Taper chatter has dragged expectations for the first rate hike dramatically forward. Just a month ago, expectations were as late as Jan 2016 but Fed Funds futures have collapsed in recent weeks to imply rate hikes begin in Jan 2015 - a level of 'tightening' not seen since early Summer last year. Bernanke has stated that his communication is aimed at "reducing the risk that market misperceptions of [FOMC] intentions would lead to unnecessary interest rate volatility," but just as with Kuroda, the market seems to not be agreeing and, as we note below, there appears a good, bad, and ugly 'taper' scenario for today.
Rate Hikes being priced increasingly soon...
and Bonds reflecting similar 'tightening' - but obviously stocks don't care.
Which leaves three main scenarios - as we previously noted:
As important as when the Fed might taper its asset purchases is why it might do so. Uncertainty about the Fed’s QE reaction function, BofAML argues, is a significant contributor to recent market volatility. There are several scenarios that could explain why a number of Fed officials have started talking about tapering: they have become more optimistic on the outlook; they are more worried about potential QE costs; they have decided to taper earlier for largely technical reasons. The first of these likely would be the least disruptive for markets, and the last the most. Clear Fed communication could mitigate some of the volatility, but, as BofAML notes, the current lack of consensus on the FOMC likely means uncertainty will likely persist.
Via BofAML,
The good news taper
Several Fed officials have sounded more optimistic on the outlook recently, including noted doves (and current voters) Charles Evans (Chicago) and Eric Rosengren (Boston). Other core Fed officials, such as Chairman Bernanke and New York’s Bill Dudley, sound less convinced in recent remarks and seem to have reluctantly acknowledged that tapering before long is not outside the realm of possibility. If we get a sustainable improvement in the job market data and inflation converging back toward target, that outcome should leave the markets relatively comfortable with the Fed beginning to modestly pull back its accommodation. In that case, markets should be able to transition from Fed-led liquidity support to a better growth-led recovery story.
The bad news taper
The ride could be bumpier if markets conclude the Fed has grown more concerned about QE costs and is ending QE prematurely. We don’t see these concerns motivating the voting majority to taper early: Bernanke and Dudley, for example, admitted to monitoring for financial instability but concluded that the benefits of continued QE outweigh the costs. For some market participants, the current talk of tapering is at odds with the still weak outlook, leading them to conclude that the Fed isn’t acknowledging its true degree of concern over QE costs. Others disagree with the Fed’s current assessment of risks, and expect the Fed will eventually have to tighten policy much sooner than they have indicated. In either case, the process will be more volatile: tapering seen as premature is likely to spur risk-off behavior and increases the odds that the Fed will eventually decide to scale back up their purchases should the data worsen.
The not-so-timely technical taper
A view gaining some traction is that the Fed is discussing tapering because it actually has a lower threshold than indicated, perhaps for some technical reason. There are several variations to this view: the Fed wants to introduce volatility; it wants to “send a message” to the markets; it wants to test a small taper to see the response. Such scenarios would be quite tricky for market participants: they not only fail to clearly identify the Fed’s longer-term reaction function, but also presume the Fed, in part, is hiding its true motives.
The Fed does not typically work this way - not only do these stories run counter to the greater transparency under Bernanke, but they tend to undermine the Fed’s ability to satisfy its dual mandate. Thus our temptation is to fade these stories, but we cannot completely rule out some kind of early, small, technical adjustment to QE. The Fed is limited by a lack of consensus over QE, but they arguably could clarify their reaction function better than they have to date.
The Dove-Hawk Spectrum...
Charts: BofAML
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End the Fed.
The Wall Street Pyramid Scheme, financials with their smoke & mirrors accounting standards, CDS/CDO of 31,000,000,000 synthetic flavors, et al., all trading and transacted with an all time record amount of margin leverage thanks to Benny & The Jets and their co-horts at fractional reserve central "banking" alchemists the world over...
...dozens of trillions in FRNs, Euros, Yen & Renhimbi all pumped into the leaking dam infrastructure, to try and keep the house of cards from imploding yet again.
Wall Street that is a parasitic host attached to a dying service sector FIRE economy whereby Wall Street is deemed "systemically critical & everything to a Ponzi system that must be propped up by Modern Money Mechanics by all means necessary, if only to burst and be reflated again and again, in order to be able to kick the can, and extend/pretend"....where "investor money" [i.e. binary digits created for nothing and have an inherent worth of nothing by electronic printing presses that induce debt slavery and securitize real assets allowing for massive harvest] goes to die.
I don't think that is their objective. There was no other way to create a nation/s of debt slaves than to print a waterfall of money for the banks - to lend to NINJAs for houses, cars, college degrees, iShit, 3D-TVs, and marble counter tops.
But the piper will have to be paid....
Meant renminbi above, obviously (keep pumping that paper fiat, China, just like The Bernank & Kuroda, bitches). Need more caffeine.
Two words for the BoA analysis above - horse shit.
They forgot to answer the most pressing question. How many milliseconds early will the report be sent to the HFTs? It's touted as the most important FOMC is like forever, what the chances it isn't leaked?
That specturm graphic is so fucked up it's not even funny. There's a reason Yellen is called an "uber-dove", for example. To not have her pegged at the right is a lie all by itself. And Bernanke? Half way between dove and hawk? Who is smoking the good shit now?
Where is Krugman?
Defecits don't matter. Go Abe!! Go Bennie!! (for US readers: /sarc off)
Everything is priced in.
STRING THE FED UP.
In other news...
http://breakingnews.sy/en/article/19513.html
Four US soldiers killed after hours of US announces peace talks with TalibanAnother winning from Obama.
i think i would move out of that neighborhood....
Taper; what a shitty synonym...
...and pretty bad when the whole planet is waiting on a bunch of lying douchebags to announce more lies....and then the casino wheel turns again...
asinine...string up these motherfuckers...
It is inconceivable the amount of time and energy spent trying to divine the chicken entrails of the Fed and how to properly "position" within the context of our wholly captive and centrally planned illusory economic construct. Imagine what might be achieved if all of this navel gazing was directed towards something productive. End the Fed!
'they have decided to taper earlier for largely technical reasons.'
Thats hilarious!
The death of semi free markets happened so long ago that I have moved on to the acceptance stage already. There are no markets, there is only the bernank.
Wall Street thinks that when this FED is reined in and stops smothering the markets that everything will return to normal...... the markets will never return to normal.... now that everyone who is paying attention realizes how rigged the game really is.
Global investors have witnessed the corruption of our markets and (my guess) is that the financial center will move east ...... probably to Singapore.
When the trust is gone .... and you have soiled yourself .... there is no going back!
Trust these markets again ? Really!
What is the point of evening following these idiots anymore? I don't care what the wizard has to say... here is the cliff notes of how this ends.. Disaster! http://tinyurl.com/mem7o7x
Bernanke, being a short timer, will do nothing to spook the markets.
Lerave that up to the next guy/gal.
What's the trade for before the announcement? Any ideas? Options are quite pricey and tend to tank right after the event (if you have the wrong side)
I fully expect...nothing.
Abracapocus!
What's not priced in: The fed buys up everything in sight with benny bucks and keep doing so til it is vastly more inflated than now. Then they link the buck to gold making it worth something. Then they totally own us.
Who gets the 2pm FOMC statement at 145pm first?
Will it be GS or JPM?
Rates-of-change in (roc's) in MVt - roc's in nominal-gDp or (MVt = PT). The roc in MVt spiked again in May (fooling almost everyone). Now heading south until Oct.