Unlike the market volatility in 1Q that was pretty much contained to equities, likely due to supply side issues (my post about that is here), the episode experienced over the last two days has been very broad. It hit commodities with copper leading the way, WTI and Brent in equal proportions, and just about anywhere where one looks there is a sea of red. The 5-year TIPS spread is down about 10 basis points from my last observation a few weeks ago. The NGDP futures market on Hypermind sunk by 10 basis points from 5.4% to 5.3% yesterday, but today is back to 5.4%. And there was a broad-based rise in T-bond yields accompanied by a sharp rise in the dollar FOREX on the first day, with both declining on the second day, which, with everything taken together, seems like what might be expected from tightened policy.
Notice my use of the word “tightened” instead of “tight.” While I find little evidence that something like that sort of policy conduct is warranted, one or two days of tighter-than-yesterday policy does not a crisis make. We will not know exactly how this played out operations wise for some time. It may have been lack of accommodation that was remedied as it was spotted, or it may have been something done with purpose. I am not expecting further policy lurching motions as they are unprofessional policy conduct that is uncalled for with TIPS spreads being close to but still below target. But, of course, I don’t own a crystal ball, and could very well be a victim of wishful thinking with much misplaced praise heaped Powell for which to atone.