Print the page
Increase font size

Did Ya See the Fed’s Good Cop/Bad Cop Routine?

Graham Summers

Posted June 17, 2021

Graham Summers

As I outlined yesterday, inflation is forcing the Fed to act sooner rather than later.

Why?

Well, in the last six weeks alone we’ve seen:

  1. Four Fed officials suggest it’s time to start thinking about a taper.
  2. Fed proxies in the media (Steve Liesman) tell us the Fed is preparing to taper.
  3. The April FOMC minutes revealing that in mid-May multiple Fed officials were ready to consider making changes to its monetary policy.
  4. The April and May Fed Beige Books showing Fed contacts in the real economy were practically screaming about inflation being a problem.

Add it all up, and it was clear the Fed couldn’t maintain its “inflation is transitory” schtick much longer. The only question was how the Fed would handle the announcement of its taper/monetary tightening.

Last week, I posited that the Fed was terrified of causing another “Taper Tantrum” like the one it triggered in 2014 when it surprised the market by announcing it was preparing to end its QE 3 program. In that instance, bond yields spiked higher.

Today, with bond yields already much higher than the Fed would like, it can’t afford a similar screw up. That’s why I predicted the Fed would be treating the market with “kid gloves” as it went to remove these momentary “training wheels.”

And that is precisely what has happened…

Yesterday the Fed engaged in a classic “good cop, bad cop” release. The FOMC release represented the “bad cop” side of things, stating that:

  1. The Fed has raised its 2021 inflation forecast.
  2. That 11 out of 18 Fed officials expect at least two rate hikes by 2023 (in the next 18 months).
  3. That seven Fed officials expect the Fed will raise rates in 2022.
  4. The Fed has unexpectedly raised two of its interest rates: the Interest on Excess Reserves Rate (IOER) and its Reverse Report rate.

Fed Chair Jerome Powell then emerged to play “good cop” during his Q&A session, effectively stating that these hawkish Fed officials who believe rate hikes are coming fast and furious don’t really know what they’re talking about, and that inflation will likely roll over soon.

The issue now is how the markets digest this information.

Stocks have broken down back into their consolidation box…

Stocks

While long-term treasuries are backtesting a breakout to the upside.

Bonds

Watch these two charts closely. If stocks continue to break down while Treasuries rally, then we’re moving into a “risk off” environment.

And that could get VERY ugly.

Best Regards,

Graham Summers
Editor, Money & Crisis

The Fed Doesn’t Want You to Know This

Posted September 16, 2021

By Graham Summers

This may be controversial...

These Inflation Numbers Are No Joke.

Posted September 15, 2021

By Graham Summers

A Crisis is Brewing...

How to Profit from a Market Crash

Posted September 14, 2021

By Graham Summers

Add this type of trade to your trading toolbelt asap...

Why Stocks Are Due For a 40% Crash In the Next 6 Months

Posted September 13, 2021

By Graham Summers

Here’s what the CPI’s less known, less watched, but more accurate cousin has to say...

Time This Happened, Stocks Crashed 50%.

Posted September 10, 2021

By Graham Summers

Inflation is ROARING — here’s why that’s important for you...

Are These Sectors Warning Us That Something BAD is Coming?

Posted September 09, 2021

By Graham Summers

Let’s take a closer look...