Reassessing blah-blah-blah
August 7, 2024
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–(RTRS) “The Bank of Japan’s influential deputy governor said on Wednesday the central bank will not hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs.”
Seems to have broken the fever of the yen-carry panic. $/yen back above 147. Nikkei recovering as well, up about 1.2%. And of course US risk assets also bouncing. What if though, the real problem in the US is deteriorating labor markets and debt sustainability issues? Ten year auction today and 30s tomorrow may give clues for demand at these lower yields.
–Jeremy Siegel (stock market cheerleader) unabashedly called for an emergency 75 bp rate cut by the Fed. Because stocks declined. Previously, when there were ACTUAL reasons for emergency cuts, the Fed didn’t have programs in place for financial intermediaries to access liquidity. The funding rate was THE TOOL. The discount window carried stigma. Now, there are social workers and therapists for financial stress, and a lot of Fed programs to provide band-aids for boo-boos, and there have been repeated attempts to remove the taint associated with discount window borrowing. They’re thinking of changing the name from the Discount Window to a fancy acronym: the LOVE window. (Leverage-On-Virtually-Everything). Jackson Hole is just two weeks away: “Reassessing the Effectiveness and Transmission of Monetary Policy,” will be held Aug. 22-24.
I would note this line from Bernanke’s 2007 Jackson Hole speech: “It is not the policy of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.” I guess that’s ancient history now…
–Powell will likely prepare the market for a 50 bp cut at the September meeting at that venue (Jackson Hole). Of course, CPI is one week from today on August 14, but is unlikely to derail easing prospects, which are already priced. Yields did back up yesterday, tens rose 10 bps to 3.882%. We’ll see if there’s been enough of a concession to draw buyers for the auctions.
