The Fed Raises Rates And The Markets Say The Economy Sucks
It seems that both the bond and equities market are telling the Fed that it is off course. But the Fed does not seem to care at this point.
In this video I discuss the economy and the Fed's continued raising of the Fed Funds rate. The reaction by markets is very interesting.
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Why Bitcoin and cryptocurrencies market so attached with FED INTREST RATES?
Markets are all interconnected. Higher funding rate makes everything more expensive. It slows down the money flow to risky assets as well.
Why would you risk as much when you get higher guaranteed interest income? (Or debt repayment is even more beneficial now)
Why would you risk if you had to borrow, and pay higher interest expense now and potentially even higher later?
When Fed is slowing down hot money, you get less hot air to keep everything floating as high right?
Brother I can understand it but we know Bitcoin or cryptocurrencies are available globally and Why it's to attached with something which happened only in United States?
USD is still dominating global trades and money flow.
US is still top world economy. Whatever happens trickles down.
Major Central Banks will have to react to the Fed decisions to protect their own interests.
It always comes down to capital flow. This is what people with ideologies regarding money overlook.
Global capital flow is paramount and tells most of the story.
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Yup. Follow the money.
It all has to do with capital flow.
When things are going well, we see distribution around the world. Hoewer, when things are consolidating, we see the push towards safety. The US is the safe haven because they have the most liquid markets, never defaulted on their debt or nuked their currency.
All of this weighs on investors/traders.
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It is risk on/risk off.
When the sentiment is taking on risk, crypto soars. FUD pushes things the other way.
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The Fed raising rates was more or less in-line with what I expected. We are going into tough times and I don't think it will be time for people to get easy money. In that case, I think the tech stocks will be taking a massive hit because they use to rely on the low interest rates to keep developing using cheap money.
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Summary:
In this video, Task discusses the recent decision by the Federal Reserve to raise interest rates by 50 basis points. He mentions that the market reaction has been mostly negative, with yields in the bond market falling. Task expresses his concerns about the Fed's reliance on the Phillips curve to manage inflation and unemployment, referencing the challenges faced during the 1970s. He explains how the current economic situation differs from historical inflationary periods and critiques the Fed's approach to addressing inflation through interest rate hikes. Task emphasizes that the Fed's actions may not effectively tackle the underlying supply chain disruptions and changes in consumer behavior that have contributed to rising prices. He also suggests that the Fed's focus on job creation may overlook issues related to wage levels and job quality. Task speculates on potential future Fed actions based on economic indicators and concludes by highlighting the uncertain outlook for the economy.
Detailed Article:
Task delves into the Federal Reserve's recent decision to increase interest rates by 50 basis points, highlighting the market's subdued reaction, specifically noting the decline in yields in the bond and US Treasury markets post-announcement. He points out that despite the Fed's intention to manage inflation and unemployment using the Phillips curve framework, historical events like the stagflation of the 1970s demonstrate the limitations of this approach. Task draws a distinction between the current economic situation, marked by supply chain disruptions and shifts in consumer spending patterns due to the pandemic, and the inflationary periods of the past fueled by excess money supply. He argues that the current inflationary pressures are not solely driven by the US dollar but are instead influenced by global economic factors.
The narrative shifts towards the Fed's strategy of raising interest rates to address inflation, with Task scrutinizing the effectiveness of this approach. Task critiques the idea of the Fed "crashing" the economy through interest rate hikes, explaining that the Fed's ability to influence the supply of money is limited. He clarifies that the Fed's creation of reserves primarily impacts banks and does not directly inject more dollars into the broader economy. Task further highlights how the Fed's attempts to stimulate lending often fall short, leading to doubts about the efficacy of interest rate adjustments in controlling inflation.
Task then analyzes the yield curve, stressing that signals from both the Treasury and Libor yield curves point towards muted growth and inflation expectations. He observes a decline in the Consumer Price Index (CPI) and weakening demand for commodities and goods, juxtaposed against the Fed's focus on employment metrics as a sign of economic strength. Task raises concerns about the quality of jobs being created and the impact on higher-earning positions versus lower-wage roles. He predicts a potential pause or reversal in the Fed's rate-hiking policy based on upcoming economic data, underscoring the uncertainty surrounding future monetary policy decisions.
In conclusion, Task paints a cautious picture of the economy, criticizing the Fed's actions as potentially exacerbating existing challenges. He leaves viewers with the insight that the Fed's next moves remain uncertain, hinting at a possible shift in policy direction given evolving economic conditions.