This Is Where Things Get Nasty

Submitted by QTR's Fringe Finance

Today’s Fed presser was another waypoint on the road toward a call I already made several weeks ago: I think the AI bubble is likely to crack sometime in the next six to ten months. Combine that with the potential chaos in markets that may occur from midterm elections, and we have quite the Q4 approaching…

I rarely put a clock on market predictions because timing them is notoriously difficult. But when I laid out that window, I also started thinking about what the path toward an actual unwind might look like. Today gave us one of the pieces I was looking for…and there was one specific thing from today’s Fed decision that makes me believe the market won’t shrug this off.

Kevin Warsh kept things about as hawkish as could reasonably have been expected alongside a 25-basis-point rate hike today. More important than the quarter-point move itself was the signal that another hike before year-end is now widely expected, with near-unanimous support for the idea.

That matters because 25 basis points by itself isn’t going to break the economy any quicker than where rates previously were. What changes is the market’s understanding of where we are in the monetary cycle.

For much of the period in which rates were coming down, investors seemed to treat any interruption in easing as temporary. The implicit assumption was that hikes were behind us and that, sooner or later, monetary policy would continue getting easier.

That assumption can no longer be taken for granted. The market now has to price the possibility that...(READ THIS FULL ARTICLE HERE).