I’ve heard the R-word tossed about in the media often over the last few days and events of the recent past have come to mind. Just last weekend, my husband found an article written by one of those doom-and-gloom-sayers predicting a stock market crash early this month that I dismissed as hogwash when he pointed it out to me. I expected volatility, but where the markets are now is outsized compared to my expectations. I might have been at least a temporary a victim of rose-colored glasses.
Perhaps I should have stuck with the Dajeeps year-in-review idea because the majority of my posts during the latter half of the year were about what I view to be the wrongheadedness of rate hikes by the Fed, a point that is unlikely to ever be overstated. That was my story and I’m sticking to it.
With that kind of perspective, however, where we are now should not come as a surprise. It didn’t happen overnight, as it might appear to some, because policy is about expectations and the Fed set the stage for their version of higher rates via a negative liquidity effect for over a year. Yet I don’t necessarily see what is materially different now from three weeks ago. Thus I didn’t expect a huge change.
What is needed is to see the NY Fed weekly operations reports since the rate hike went into effect to see how much has been going into the reverse repo and whether larger and larger allocations are needing to be made in order to maintain the rate band.
I don’t have that information yet. But I think it might provide some preliminary insight into whether the Fed has stable control over short term nominal rates, and whether the repo scheme has any safety valves to prevent policy from becoming too tight. My guess is that in both cases the answer is probably not, a sort of scary thought.
My worry is whether the Fed will know when to abandon the artificial rate-fixing scheme as likely to inflict much more harm than good. I am sure that as things stand, or at least will stand over the course of the next couple of weeks, this move will have ‘gotten into the cracks’ that they have been so concerned about, and can at least leave well enough alone from there on out. I certainly would not like to live through Fed stubborn headedness of making sure short term nominal rates stick where they want come hell or high water. It simply isn’t possible to do it without the latter.
I obviously don’t exist in a bubble where the only thing that matters is macro. I hear what my customers are telling me, and it isn’t about a happy financial future. My husband works for a wireless carrier that is big in the US, and they have been sending customer service workers home for lack of work. He said, though now it is not as “bad,” he has not seen this since 2009.
The media is placing a lot of emphasis on the employment report coming out tomorrow. But that is lagging indicator. People who are being sent home today won’t lose their jobs today, at least at my husband’s company. What the outlook is for the weeks ahead is what matters for them. I have not heard anything about layoffs anywhere, at least yet. But the chatter about economic worry is getting loud, giving me the impression that they may not be far behind.