dChan
Anonymous ID: e37dcf May 1, 2019, 8:50 p.m. No.6389359   🗄️.is 🔗kun

"Surprise Or Total Shock": How Powell Unleashed The "Tweak Not Tweet"

 

One week ago, when discussing how the Fed had lost control of rates specifically highlighting the recent spike in the Effective Fed Funds rate above the IOER, i.e., the traditional ceiling in the Fed Funds corridor, which today hit an all time high of 5bps.

 

… we said that "the Fed might consider an imminent IOER reduction, possibly at the May meeting next week."

 

And as we learned today, not only did the Fed consider this, but went so far as to stun markets by pulling the trigger, or rather, the market may have been shocked, but our readers certainly were prepared for this "surprising" development. Confirming this initial "shock", the market's reaction suggested that its take on the Fed's announcement was seen as one of profound dovishness, only to sharply reverse just moments after, when Powell confirmed that the IOER move was entirely related to the clogged piping in funding markets, following his discussed of the "transitory" nature of inflation, sending the dollar and yields surging, and stocks tumbling as the Fed suddenly sounded like its old, mid-2018 hawkish self.

 

The reversal was painful enough to give traders whiplash, and as BMO's Ian Lyngen and Jon Hill wrote after the press conference, "we’ll be the first to acknowledge surprise (though not total shock) at the FOMC’s cut of IOER" although as they also note, the logic holds that the Fed wants to separate the "fine-tuning" being accomplished (i.e. keeping effective fed funds within the target range) from actual policy rate decisions. This point, Lyngen notes, was driven home during the press conference, adding that "the communications risk was always Powell’s biggest challenge for such an action and in this context, 2-year yields temporarily touching 2.20% and 25 bp on 2s/10s seems a small price to pay for the ‘needed’ policy tweak (not tweet)."

 

Additionally, as the BMO rates team observes, this was all completely reversed for an 11 bp round-trip for 2s, and summarizes that its biggest takeaway is that "Powell offered a material challenge for the cyclical resteepener and a ~5 bp range for 2s/10s."

 

And now the question is how quickly will EFF rebound back to 2.45% even with the IOER freshly trimmed down to 2.35%, confirming that with every passing day the Fed is increasingly losing control of overnight funding rates.

 

https://www.zerohedge.com/news/2019-05-01/surprise-or-total-shock-how-powell-unleashed-tweak-not-tweet

 

What habbened today with the no rate change was that the FOMC cut the discount rate for the big borrower's of capital. Retail pepe's do not see the result of this. What it will cause it a hastening of the yield curve collapse because the FOMC has decided that the banks are moar important to themselves, as the actual owner's of the Federal Reserve, than the actual system that it feeds. by dropping the Fed discount rate is allows them to book a wider, not by much, spread between the money it borrows and then uses or lend's out. It's a shoot themselves in the foot moment and will have little effect, if any, but will buy them a little moar time.

 

This is a current rate projection for the October Meeting where the odds have increased of a FOMC rate cut. The are jaw-boning that it will be in December however that is not what this say's cap #3