However, as the chart below shows, the last week - as UK chaos erupted and spread to US equity and bond markets - there has been s dovish shift in market expectations for just how hawkish The Fed will be able to get before everything goes pear-shaped...
Powell's speech also triggered a total puke in equity markets as all that 'hope' for a 'Fed Pivot' was dashed (prompting the greatest quarterly loss after a 10% rise since 1938)...
All of which brings us to the latest Bear Traps note by Larry McDonald, who has argued for months that Powell cannot get Fed Funds to 350bps and that belief that The Fed can achieve $1T of QT balance sheet reduction in 12 months is a childish fantasy.
We stand by this view.
The Fed is done hiking or very close to that address.
This week, the pension blow-up in the U.K. was excess leverage - under the surface - an eye opener.
It´s everywhere, there is NEVER one cockroach.
We have "crossed the Rubicon" – academics are waking up to the fact that financial stability risks are trumping inflation risks in a meaningful fashion.
One last dot to connect – we carefully monitor Sell Side Street research.
We must keep an eye on those sheep, you know.
Over the last 10 days, banks have gone from pounding the table on 450-500bps Fed funds to FAR more focus on U.S. dollar financial stability risks.
Reaching for the cell phone, senior executives at the banks have been calling their economic research analysts and saying, "what are you smoking?"
Brainard´s speech Friday talked up financial stability concerns but was NOT dovish.
The risk of a crash is rising, our 21 Lehman systemic risk indicators are the highest since the depths of the Covid panic.