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Three Key Takeaways From The Fed Meeting

Three Key Takeaways From The Fed Meeting

Confirming what we said in "It’s Official: Tapering To Begin In November, End In July", the FOMC…

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This article was originally published by Zero Hedge

Three Key Takeaways From The Fed Meeting

Confirming what we said in “It’s Official: Tapering To Begin In November, End In July“, the FOMC today paved the way for a taper start in two months when it said “the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” Furthermore, the projected path for the policy rate in the Summary of Economic Projections (SEP) showed an even split among FOMC members between zero and one hike in 2022, slightly above the OIS implied rate.

Additionally, the median projection implied three additional hikes each in 2023 and 2024 (for six and half total by end-2024). As shown in the chart above, the market – which is pricing in just 1% Fed Funds rate in 2024 – will have an uphill climb to catch up to the Fed.

Curiously, in its commentary on the FOMC, Goldman appears to be hinting at a bit of a mutiny inside the Fed: according to Goldman’s Jan Hatzius “our best guess is that Chair Powell did not project a hike in 2022.” Is Powell about to cede control to the far more hawkish regional Feds?

In its post-mortem of the FOMC, BofA chief economist Michelle Meyer said that on the whole, the Fed meeting was  another move in the “more hawkish direction.” even if the bank clarified that “this is still a very dovish Fed that is highly committed to achieving higher inflation and a hot economy. But in the face of supply side constraints and growing signs of persistent inflation, it appears that those objectives could be met earlier.”

This may explain why Goldman was wildly off in its forecast: as Hatzius notes, “the median dot implied three additional hikes in 2023 and three more in 2024, implying three and half total hikes through end-2023 (vs two in June; we expected two at this meeting) and six and half hikes through end-2024 (not reported in June; we expected five at this meeting).”

There were three key takeaways from the meeting:

1. As noted above, taper on track to be announced in November and be completed by mid-year. While the taper signal in the statement was vague – “may soon be warranted” – Chair Powell clarified in the press conference that they could be ready in the upcoming meeting (in November). Hence absent a significant disappointment in the employment data or financial market disruption, this confirms what we said two weeks ago, that tapering will begin in November and end in July.

2. Committee members are edging toward higher rates: As the Fed’s updated dot plot showed, the Committee is now evenly split between the first hike in 2022 or 2023, which brought the median up to 0.25%. The consensus is now for 3 hikes in both 2023 and 2024, leaving rates at the end of the forecast horizon at 1.75%. As Chair Powell noted, this is still decently below the long-run funds rate of 2.5%, which means policy is still accommodative; meanwhile with 2024 OIS still pegged at 1% the market’s verdict is no way the Fed can achieve this.

3. The case of higher inflation is building due to greater supply side constraints: Forecasts were boosted for core inflation modestly and Powell noted that the supply side is constrained and creating challenges for inflation. As BofA notes, “the Fed has become more concerned about persistent price pressures, although the critical test will be long-run inflation expectations, which remain well anchored. Monitoring the supply side developments will be critical:; the supply side remains constrained for both goods and labor.

Market reaction

The rates market interpreted Fed communications as hawkish, with the yield curve flattening, 5Y rates 2bps higher & 30Y rates 2bp lower.

This according to BofA, was driven by changes to the dot-plot and communication about tapering. Meanwhile, the US dollar initially sold off following release of the statement but subsequently rallied sharply during Chair Powell’s press conference, finishing the day higher, with lower beta FX (emphasis: EUR) underperforming. A strong probability of a November taper and, in particular, the new hawkish dot plot are likely continue to support USD in the weeks ahead, unless fears about a big policy mistake – one which potentially could force the Fed to proceed with QE – re-emerge as they did in June.

On the November Taper

While the statement was somewhat vague, Chair Powell was clear in the press conference. He noted that the criterion for substantial further progress for price stability has been met and has “all but been met” for employment, even if some cynics pointed out that is hardly the case.

Powell said he would need to see a “good” but not exceptional jobs report in September to feel comfortable announcing tapering at the upcoming meeting in November. Powell was also specific on the path for tapering, noting that the Committee expects to finish tapering by the middle of the year, indicating a preference for a monthly pace for tapering, translating into $15bn every month.

Hiking is (not) tapering

Similar to 2013, Powell reiterated that the decision to taper is different from the decision to hike, stating that when tapering starts, we will be “well away from satisfying the liftoff test.” Despite similar rhetoric in 2013, it took the bond market months to agree with this take. However, what is clear – at least according to the Fed – is that at the end of the forecast horizon in 2024, rates will still be below the long-run rate forecast, suggesting that policy will be supportive into 2025; one can only imagine what inflation will be then. Powell also emphasized the importance of long-run inflation expectations, arguing that they are higher but mostly back to 2013 levels and not particularly troubling. He reiterated that the goal of FAIT was to push up inflation expectations, which is what has been done. He also mentioned the Fed Board’s Common Inflation Expectations (CIE) measure are at reasonable levels that are consistent with the FOMC’s inflation target.

Transitory inflation is (not) permanent

Powell attributed the sharp upward revisions to inflation to greater supply bottlenecks, which may be “with us for the next few months and into the next year.” It was unclear what will happen if they are with us well into 2022, especially since the supply side remains constrained for both goods and labor, something FedEx made abundantly clear in its earnings call last night when it slashed its EPS outlook due to soaring labor and operational costs. This, according to BofA, must be a concern for the Fed, as it threatens to keep inflation more elevated  than they had been expecting. The speed by which the supply side constraints ease will be extremely important to inflation risks and the timing of the first hike.

Rate market interpretation

According to BofA, the rates market interpreted Fed communications as hawkish although this is somewhat suspect in line of the sharp curve flattening; in fact one could almost argue that the rates market indicated the Fed is engaging in another policy error.The hawkish interpretation was driven by the Fed’s dot plot and taper communications. The Fed’s dot plot signaled a pace of hikes that is in line with the market for end ’22, 10bps above the market for end ’23, and roughly 60bps above the market for end ’24. For the Fed to be credible, the market will have to move sharply higher, a move which will have adverse consequences on risk assets.

The Fed communication also suggests a clearer bias for 5s30s curve flattening in coming months. The announcement of taper at the Nov FOMC should have a limited impact on spreads given the US Treasury is likely to announce coupon cuts on the same day. BofA continues to favor wider swap spreads across the curve in the months ahead due to these UST coupon cuts and ongoing steps to improve UST market structure.

Finally, on a day when the Fed’s overnight reverse repo facility hit an all time high of just under $1.3 trillion, the Fed announced an increase in their overnight reverse repo (ON RRP) per counterparty cap from $80bn to $160bn. We flagged this possibility in August due to increased money fund utilization of ON RRP, and the increase can be interpreted as a preemptive measure by the Fed to ensure abundant money fund & GSE access to the Fed at September quarter end and in case there is a substantial flight to quality due to debt limit concerns.

Tyler Durden
Wed, 09/22/2021 – 18:00

Author: Tyler Durden

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Precious Metals

Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

First things first, when is a wealth tax not a wealth tax?…

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Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

First things first, when is a wealth tax not a wealth tax? When Janet Yellen says so…

The proposal under consideration from Senate Finance Committee Chairman Ron Wyden (D., Ore.) would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said Sunday on CNN.

“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized,” Ms. Yellen said.

But House Speaker Nancy Pelosi told CNN:

“We probably will have a wealth tax.”

But markets either a) don’t believe a word of it (given the relationship between all these billionaires as benevolent overlords of the political class), or b) don’t give a shit as The Fed will always be there…

And nowhere is this craziness more obvious than here. While Trump’s SPC (DWAC) stalled today (after rallying 800% in 2 days), TSLA and BKKT took over the crown of momentum-driven insanity kings

TSLA topped the trillion-dollar market-cap level for the first time (TSLA was up more than 1 GM today) on headline about HTZ ordering 100,000 TSLA vehicles…

Surpassing FB (ahead of tonight’s earnings) to join the ‘cuatro comas’ club…

Source: Bloomberg

All on the back of a massive gamma bomb.

@Stalingrad_Poor exclaimed:

“TSLA call options strikes up $10,000 in a single day. I’ve never seen this in my life”

NOTE: If unrealized gains are taxed as income (as several Democrats have indicated), Elon Musk would face a $30 billion tax bill for his gains this year!!

And BKKT soaring over 160% on its partnership with Mastercard on crypto rollout…

Bitcoin and Ethereum were both up today on the Mastercard news (and Neuberger Berman has linked up with BlockFi).

Bitcoin topped $63,500…

Source: Bloomberg

And Ethereum rallied back above $4200…

Source: Bloomberg

All the major US equity indices were higher today, led by Nasdaq and Small Caps. The Dow lagged but still closed green…

Record intraday (and closing) highs for The Dow and S&P today.

On a side-note, the S&P/TSX Composite rose again today – a record 14th straight daily gain (a record that stood for 102 years)…

All thanks to yet another major short-squeeze….

Source: Bloomberg

Utes and Financials lagged today while Consumer Discretionary and Energy ripped…

Source: Bloomberg

Treasuries were mixed today with yields lower across the curve aside from 30Y…

Source: Bloomberg

The yield curve (5s30s) steepened back into its recent range…

Source: Bloomberg

The dollar rallied on the day to the top of its recent narrow range…

Source: Bloomberg

WTI hit a new 7-year-high today above $85 before fading back into the red…

Gold jumped back above $1800…

Real yields dropped a little today, leaving room for a considerable move higher in gold still (to around $2000)…

Source: Bloomberg

Finally, the level of “greed” in the market is back at 2021 highs…


“probably nothing” – oh and don’t forget that the last time capital gains taxes were hiked significantly was 1987 (from 20% to 28%) and that didn’t end so well eh?

Tyler Durden
Mon, 10/25/2021 – 16:00

Author: Tyler Durden

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Crypto news: BlockFi partners with $437 billion investment fund; EY sponsors Chainlink ‘hackathon’ event

Cryptocurrency lending firm BlockFi has partnered with Neuberger Berman to offer crypto-based products to the US investment manager’s customers. BlockFi,…

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Cryptocurrency lending firm BlockFi has partnered with Neuberger Berman to offer crypto-based products to the US investment manager’s customers.

BlockFi, along with Celsius and Nexo, is one of the crypto industry’s big three lending services. It made the announcement on  Monday and revealed the joint venture will include the development of exchange-traded funds (ETFs) and “other traditional structures.

The partnership’s products and strategies will be formulated and delivered by a newly created entity called BlockFi Nb.

With the Mastercard and Bakkt collab news barely a day old, it seems we’re in institutional crypto adoption season, although that’s pretty much been the case for the past 12 months.

“We are witnessing a significant shift in investor sentiment towards digital assets, and we believe that digital assets should be considered in modern portfolios,” said Greg Collett, president of the joint venture.

Neuberger Berman is a New York-based, 82-year-old independent investment management firm that looks after US$437 billion in client assets as of September 30. The firm’s main holdings reside in equities, fixed income, hedge funds and real estate.


Also making news: EY, Chainlink, GBTC, Uniswap, Rand Paul

• “Big Four” accounting firm Ernst & Young is sponsoring the Chainlink Fall 2021 Hackathon, running until Nov 28. The event gives crypto startups pitching opportunities with VCs.

• Grayscale’s GBTC (which is as close to a Bitcoin ETF as you’ll get in the US without actually being one), delivered better returns last week than the market’s new BTC ETFs.

• Decentralised exchange Uniswap is set to gain more exposure. Swiss digital asset issuer Valour is launching the first ever exchange-traded product (ETP) tracking the UNI token.

• US Republican Senator Rand Paul has stated that he thinks it’s possible Bitcoin could become the world reserve currency if more people lose faith in governments.




The post Crypto news: BlockFi partners with $437 billion investment fund; EY sponsors Chainlink ‘hackathon’ event appeared first on Stockhead.

Author: Rob Badman

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Oil in wait-and-see mode, gold moves up

Oil consolidates at the highs Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the…

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Oil consolidates at the highs

Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the momentum to maintain those intra-day highs as the US dollar started strengthening. With a lack of new headline drivers to sustain the moves. Brent crude finished 0.28% higher at USD 85.95 and WTI finished 0.50% lower at USD 83.75 a barrel, having traded as high at USD 85.35 intra-day. Asia has adopted a wait-and-see approach this morning, possibly on China nerves, leaving both contracts almost unchanged.

The US API Crude Inventories will be oil’s next volatility point, with a low print likely to lead to more price gains. However, the price action overnight does suggest that short-term upward momentum is waning as the trade gets ultra-crowded and the RSI indicators on both contracts remain overbought. Another 3 million barrel jump in inventories could spur some short-term long covering and see oil’s long-predicted sharp move lower finally occur to wash out some of the weak speculative longs. Once again though, I will reiterate that the overall environment for oil remains very constructive and any sharp sell-off is likely to see an equally sharp recovery. Of the two, WTI looks more vulnerable as it is more heavily traded by specs and Brent crude is more aligned to the international physical market.

The overnight highs at USD 86.70 and USD 85.40 a barrel for Brent and WTI form initial resistance. Trendline support at USD 83.40 and USD 79.70 a barrel should be the limit for any downside correction. Only a daily close below those levels suggests a deeper correction is possible.

Gold’s price action remains constructive

Gold staged another impressive rally overnight and there is no doubt that its price action is becoming more constructive towards further gains. Gold rose 0.85% to USD 1807.80 an ounce before some long-covering saw it fall 0.25% to USD 1803.20 an ounce in Asia. The rally is made more impressive by the fact that the US dollar has continued strengthening against the major currencies overnight. In contrast, US bond yields eased across the curve, and it looks like gold is taking its cues from them for now.

Gold has now recorded a daily close above USD 1800.00, and more importantly, the 100 and 200-day moving averages at USD 1793.50 and USD 1790.25 an ounce. One must respect the price action in these circumstances, especially when it appears not to be driven by fast-money gnomes. Therefore, gold has formed a nice layer of support between USD 1790.00 and USD 1800.00 now followed by USD 1780.00 an ounce. Initial resistance is at USD 1814.00 followed by the formidable zone of daily highs between USD 1832.00 and USD 1835.00 an ounce.

Gold continues to slowly but surely, form what appears to be the second shoulder of a longer-term inverse head and shoulders pattern. In the bigger picture, a rise through USD 1835.00 an ounce, would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce.

Author: Jeffrey Halley

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