Stocks, Dollar & Yields Sink After Fed Warns Of "Elevated Vulnerabilities" From High Asset Prices

Tyler Durden's picture

The initial reactions wre modest but directionally 'correct' given the dovish bias to the Fed Minutes - stocks are up, bonds are up (lower in yield), and the dollar is down. But then traders read the warnings that due to excessively easy financial conditions, "a tighter monetary policy than otherwise was warranted", something Goldman has been warning about for months, and stocks sank.

To be sure, there were 3 very dovish quotes:

1. "Many participants, however, saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside."


2. "Participants agreed that a fall in longer-term inflation expectations would be undesirable, but they differed in their assessments of whether inflation expectations were well anchored."


3. "Most Fed officials saw wage-price framework still valid"

Bonds and the dollar were following that bias...

But stock reversed their initial gains...

As many missed the following comment on why The Fed is tightening...

According to another view, recent rises in equity prices might be part of a broad-based adjustment of asset prices to changes in longer-term financial conditions, importantly including a lower neutral real interest rate, and, therefore, the recent equity price increases might not provide much additional impetus to aggregate spending on goods and services.


According to one view, the easing of financial conditions meant that the economic effects of the Committee's actions in gradually removing policy accommodation had been largely offset by other factors influencing financial markets, and that a tighter monetary policy than otherwise was warranted.

Translated: they are tightening because financial conditions are too easy and in an effort to push markets lower... which they're not worried about as the wealth effect has gone.

Certainly, the 'tightening' is not working:

Finally, and most ominously for bulls, there was the  very explicit warning that an asset bubble is getting bigger:

The staff provided its latest report on potential risks to financial stability, indicating that it continued to judge the vulnerabilities of the U.S financial system as moderate on balance. This overall assessment incorporated the staff's judgment that, since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets.

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Rick Cerone's picture

The Nazi elite are going to suffer along with the rest of us.

Rick Cerone's picture

The only good Nazi, ..............!

Bill of Rights's picture

No they will die quickly if some of us can help it.

pound the vix's picture

It must be great to talk out of both sides of their mouths at the sametime

order66's picture

I call bullshit. I'll believe the Fed when my savings earns 4%.

1stepcloser's picture

I'll believe it when Uncle Sam is paying a $Trillion in yearly interest payments

ReturnOfDaMac's picture

THAT would be the end of the world. We "owe" $20T, that much interest would kill the planet ...

BSHJ's picture

In other words, they are saying "if we can help get rid of Trump, this is how we will do it"

pound the vix's picture

I agree.  If the Press cant get him to distroy himself with stupid answers the FED/Stock Market can crush him

small axe's picture

"not worried about wealth effect"  ... of course not, the intended transfer of wealth to our new oligarch class has been a colossal success. It's time for the Fed to pat itself on the back and turn its attention to even more divisive policies in order to ensure another 100 years of winning for the aristocracy.

ReturnOfDaMac's picture

Jeeze Louise, talk about speaketh with forked tongue!  Just say the words Janet: buy, stawks, now.   Soon as shiny gets spitting distance from 1300 release the Kraken, err, monkeys...

Last of the Middle Class's picture

Planned economic destruction by the Fed and ANTIFA. You gotta love that shit. I especially love the part where they talk about inflation. It is or it isn't, but all is fine as they print a trillion dollars a year to devalue every good and service you utilize.

Rebelrebel7's picture

The largest and most threatening asset bubble currently, though there are many which pose serious risks, is the asset bubble of the establishment's delusions of grandeur and  narcissism !

We Are The Priests's picture

The Fed speaks the truth!?!.  Wow, this time really is different.  Still doesn't change the ultimate outcome.

FreeNewEnergy's picture

Wall Street insiders were obviously tipped off on the language in the minutes because everything - other than stocks - started moving much earlier than the 2:00 pm release. PMs were on the move prior to the equity markets open, as were bonds.

Fed is nothing more than a mechnaism for fraud and insider trading. Works for me, for now. One does not have to be a financial genius - like many around here - to see this. There are other markets besides stocks. I prefer to play there.

The Real Tony's picture

I watched the dollar croak just before 1pm and consequently gold rise.

U4 eee aaa's picture

They'll print until the toner is pried from their cold, dead fingers

ReturnOfDaMac's picture

They'll print until there are no more trees, then they'll print on cotton ... oh wait!