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Rethinking Fed Intervention: Wages, Inflation, and AIIn light of the precarious global economy and numerous contributing factors, such as deglobalization, the inflationary impact of the war in Ukraine, an aging population, and an overwhelming amount of debt, the Federal Reserve's role and efficacy in the current economic climate have come into question. Drawing on Jeff Snider's work, it is increasingly evident that the Federal Reserve has not completely controlled the financial system. Despite their efforts to manipulate interest rates, external factors and market forces continuously challenge the Fed's authority. The market's current outlook suggests that the Fed may be forced to cut rates soon, indicating that its strategy of hiking rates may not have been the best approach. The central premise that the Fed should intervene to suppress inflation by keeping wages low is fundamentally flawed. Higher wages can lead to increased productivity investments, reducing the need for labor and raising living standards over time. However, hiking interest rates can stifle investment, hindering economic growth and exacerbating inequality. In recent months, inflation has decreased independently, without the direct influence of the Fed's actions, suggesting that the economy may be self-correcting. However, this natural deflationary pressure could be disrupted by external factors, such as the tightening of lending standards brought on by the mini-banking crisis. The ongoing threat of AI-driven job losses and an impending recession further complicates the situation for American workers. Jeff Snider's research at Eurodollar University offers valuable insights into the complex relationship between the Fed and inflation. Snider argues that the Fed's actions may not be the primary cause of inflation, as it has limited control over the money supply. Instead, he posits that the global financial system, specifically the eurodollar market, plays a more significant role in influencing inflation rates. As we progress into the exponential age, the rapid advancement of technology and artificial intelligence (AI) will lead to significant disruptions. However, there are potentially positive aspects to these developments. AI could revolutionize industries, streamline processes, and create new opportunities. The widespread adoption of AI can lead to increased efficiency, improved decision-making, and the automation of repetitive tasks, ultimately driving economic growth. The productivity gains associated with AI could offset some of the negative impacts of the current economic climate, such as job losses and wage stagnation. In summary, the belief that the Fed should intervene to suppress wages to tackle inflation is fundamentally misguided. Such intervention can have numerous negative consequences, including hindering investment and stifling economic growth. In contrast, allowing wages to rise can lead to increased productivity investments and improved living standards. To effectively address inflation, it is essential to consider a more comprehensive range of factors beyond the Fed's actions and recognize the importance of encouraging sustainable economic growth through policies promoting higher wages and productivity investments. Policymakers and financial analysts must carefully consider the consequences of their actions and their impact on the broader economy and society. Thanks to Michael Green, aka @profplum99, for inspiring me to write this analysis :) twitter.com
TVC:US10Y
by BitcoinMacro
QE or QT?Last week, the Federal Reserve (Fed) went ahead with the 25bps hike that many expected, causing a spike in the U.S. dollar and a temporary halt to the rally that equities and risk-on assets were experiencing. This rate hike has come under scrutiny from market analysts. In the past two weeks since Silicon Valley Bank ( SVB ) and Silvergate Capital collapsed, there has been a multi-billion dollar capital outflow from financial institutions. The primary driver of this depositor flight comes from individuals and asset managers moving capital from low-interest savings accounts to high-interest money markets in the form of treasury bills which pay upwards of 4%. In the week of the collapse of SVB, low-risk investment vehicles that invest money in short-term government and corporate debt saw net inflows of approximately $121 billion. This 25bps hike will increase the yield of newly issued treasury bonds (worsening depositor flight) and cause the value of existing bonds with lower yields to decrease. Ultimately, this initiated the collapse of SVB as the dollar value of the existing treasury bonds that the bank held as collateral fell below legally required levels, resulting in the bank announcing that they needed to raise capital, which culminated in a run on the bank’s reserves. Hence this rate hike further increases systemic risk within the market, displayed by the price of credit default swaps (the cost to insure bondholders against a default) going vertical for many banks within the economy. Consequently, it seems strange to some analysts that the Fed didn’t at least pause rate hikes after the latest FOMC, especially considering Powell stated that he considered pausing in the days leading up to the meeting. After SVB began to unwind, the Fed announced the Bank Term Funding Program (BTFP) in order to try and limit the contagion within the economy. The scheme provides eligible depository institutions with liquidity in return for posting collateral such as under-water treasuries and mortgage-backed securities. Some market participants initially interpreted this as the Fed commencing another round of quantitative easing ( QE ); however, the actual mechanism is very important here. QE is the Fed’s way of injecting the most liquidity into the economy. If the Fed were actively engaging in this, the medium-term outlook would become much more bullish. BTFP collateral posted to the Fed, at least for now, must be swapped back to the bank at the end of the term and comes at a cost. So without going deep into the details, the impact on liquidity is quite different from actual QE. In reality, the recent banking crisis and the Fed’s response display that, in the short term, a pivot to accommodative monetary policy is for now ruled out. The BTFP scheme perfectly displays how monetary authorities will utilise all available measures to preserve stability during further tightening, likely meaning that a hard landing is now firmly on the cards. From a technical perspective, the weekly Bitcoin chart looks good. The bullish momentum from MA9 crossing above MA50 has played out as Bitcoin has rallied towards the key psychological resistance of $30K. Bulls will hope for a weekly close above the $29K resistance level, which should ignite the rally to $30K and beyond. Should this bullish momentum break down, the market will likely test the $24 - $25K support range. A fall through this would likely result in a breakdown towards the $21K - $22K supply zone, where there are presumably a lot of unfilled longs that weren’t filled before the current rally. The fact that the relative Strength Index is hovering around overbought levels indicates that the market could be primed for a reversal and supports the bearish scenario. As we advance, the U.S. CPI data release on the 12th of April will have a bearing on short-term market direction. Soft CPI figures will provide risk-on assets such as crypto with bullish momentum while hurting the U.S. Dollar and yields. Again, volatility will be high around this time, so caution should be exercised, most notably in leveraged positions.
by Coinrule
BITCOIN What Will Happen Next? Analysis! Hello,Traders! BITCOIN did not yet manage To break the key decisive level And I think that before the FED's first rate cut we will See BTC consolidating Between the two levels But after the breakout And 1W candle closing Above the level we will be Able to say that BTC will Go higher and sky is the limit Before that and before the FED acts, I am inclined to Expect consolidation Analysis! Like, comment and subscribe to help us grow! Check out other forecasts below too!
BITSTAMP:BTCUSDLong
by TopTradingSignals
11
FOMC Preparation (DXY) 22nd March 2023Overnight, the DXY continued to weaken and traded down to the 103-round number support level. However, the price bounced from the level to consolidate at the current level of 103.18. It is likely that the DXY could continue to consolidate along this level in the lead up to the FOMC interest rate decision due on Thursday morning. The expectation is for the FOMC to increase rates by 25bps to take the interest rates to 5.00%. This decision is likely to have been priced in. IF the FOMC decides to hold rates, due to the uncertainty in the market due arising from the banking crisis, this could see the DXY drop significantly to the downside. In addition to the interest rate decision, pay attention to the accompanying statement and the press conference which follows. A dovish tone, citing concern over the current market turmoil could see the DXY continue to weaken further. Ultimately, if the DXY trades below 103, the next support level is 102.63. And beyond that, the next key level is at 101.55.
TVC:DXYShort
by JinDao_Tai
DXY and the FED coming tomorrowImagine YOU were the FED You have enough Liquidity to bail out the important banks, been setting it up for days. The Shrimp banks can default, happened before in 2008 and the DXY INCREASED in Value You HATE Crypto, its taking Your money Increase Rates by 50- job done ? This is a very real scenaro as far as I am concerned. Traditional finance is under attack by Crypto. Traditonalists will run to save banks but , if you think about it, WHY ? Banks are a prime example of "Filter down" but most of the time, it is more a trickle is anything at all..and THAT is what people like the FEDERAL RESERVE ( A PRIVATE organisation, NOT governmental) are tryin gto protect.Their monopoly. There has NEVER been a cradable challenge to the Banking industry - Now there is and it is WAR As mnetioned above, 2009 saw many banks collapse but look at the DXY...It Rose 22% over the next 12 months. DXY did not suffer in anyway and this could happen again and, in fact, is VERY likely to. And THAT is the FED's job - thats what it does. So, Will they raise the rates tomorrow ? 12? 50 ? 75 ? The mission is to Kill Crypto or save a Business ? We will find out tomorrow
TVC:DXY
by Orriginal
USDCHF Outlook 21 March 2023The USDCHF has been trading within the narrow range of 0.93 and 0.9237 (which coincides with the 38.20% Fibonacci retracement level). With the Swiss National Bank (SNB) interest rate decision due on Thursday, the USDCHF is likely to continue consolidating along this range. As the directional bias of the USDCHF is heavily dependent on the volatility of the DXY, a breakout in the interim for the USDCHF is likely to be driven by a strong move on the DXY. If the SNB hikes rates by 50bps as forecasted, taking interest rates to 1.50%, this could strengthen the CHF and see the USDCHF trade lower. If the price breaks below the immediate support level of 0.9237, the next key support level is 0.91. However, watch out for possible hesitation at the interim support level and 61.8% Fibonacci retracement level of 0.9174.
Short
by JinDao_Tai
KRE / XLF / QQQ / SPY Triple Top Resistance into Wednesday FOMC- KRE and XLF still in a bear flag territory, Both are closing in on their tightening range and will break very soon either tomorrow or Wednesday. we will get a lot of volume and volatility once this breaks. - QQQ & SPY have a Triple top resistance, if XLF break bull SPY will very likely break that resistance, so will watching all 4 closely. - FOMC Wednesday 0.25BPS is still around 70% chance, what bulls want to see is Powell saying we are pausing after this hike, Bears want to see more 0.25BPS hikes.
AMEX:KRE
by ArcadiaTrading
GBPUSD Outlook 20th March 2023The GBPUSD has been trading steadily higher from the 1.20 support area to find the key resistance level of 1.22 With further weakness anticipated for the DXY, the GBPUSD is likely to continue trading higher, especially if the price breaks out beyond the resistance level. Another reason that could see the GBPUSD trade higher is the market anticipation that the Bank of England (BoE) is likely to increase interest rates by another 25bps at the upcoming meeting. If the price breaks above 1.22, the next key resistance level is at 1.24, with a brief hesitation level at 1.2270.
Long
by JinDao_Tai
The FED HAS already pivoted! Who cares what the FED does next?Apologies for the click-baity title, but I did want to get your attention to make (once again) my point that inflation is ON now and that the FED has actually pivoted while many are watching and don't see it that way. Let me explain. Back when the FED started raising rates rapidly I grew worried that at this unprecedented pace of rate hikes, something would break. I stated this all along through each of my post. Foolish people and businesses simply do not have the acumen to hedge against the rapidity of dried-up liquidity in the markets. I did not know the banks would become the first culprit exposed in their foolish investment endeavors. But here we are. Banks are failing because of their own stupidity and guess who gets to pay for it once again? That's right, you and I do through the continued devaluation of our U.S. dollar. "But the dollar's getting stronger", you emphatically retort. Yes. It was. As the FED moved to increase rates in a reactionary manner, as they always are, the dollar did gain strength and is currently fairly strong, relatively speaking. However, things will soon change and many do not even know it as they are focused on the wrong indicator, FED rate hike action and future interest rates. While this is certainly still important, it does not tell the whole story. As you know, I have been calling for a pause or pivot from the FED soon. That pivot has already come. "How so?", you asked. The FED has not articulated strong indicative language regarding a pause or pivot. That's true. But while the banks were failing, the FED did begin to guarantee depositors their money due to 'systemic risks'. I've heard this before (think 2008 and the BIG 3). In guaranteeing depositors their funds, the FED mushroomed its balance sheet by roughly $300 billion dollars last week alone! And this may just be the beginning! Incredible. This is the pivot that I was looking for from the FED. So, while everyone else continues to focus on what the FED will do next in terms of interest rates, savvy investors have already spotted the change and recognize that it's now inflation ON! This subtle (or not so subtle, pending perspective) change in direction correlates with three important thesis points that I have been making all along: That something will break That the FED will pause/pivot That we will see a blowoff top in the US stock market It also aligns with current technicals. As you can observe from the chart above, price action has retested our macro-downtrend line precisely as anticipated, has bounced from there as anticipated, and is currently trending up as anticipated. I do believe this is the beginning of our blowoff top with a price target of US500 to be at or around $5,500 to $6k by early to late fall. Maybe early winter. Timing is difficult. Best to you all, Stew
ULong
by stewdamus
2
AAPL/MFST Key Resistance for $QQQ. XLF Houly Bullflag, 25BPS- 7.5% move on QQQ/NASDAQ in 4 days. AAPL and MSFT now hitting key resistance, will be watching to see if it can break above or not for QQQ to continue. - likely a slight pullback hourly consolidation for QQQ before attempting another leg up. - after ECB hiked 0.5% this morning our rate hike of 25Bps increased to 80% chance this morning. - XLF hourly bullflag still possible need to see bulls show up and hold above 0.382 fib - as long as hourly trend is intact for the bulls on QQQ / SPY / SPX there is no red flag at all for the bulls.
AMEX:XLFLong
by ArcadiaTrading
EURUSD remains firm with ECB to comeHard to look past the recent banking crisis that has rocked equity markets all week. Credit Suisse was the latest to hit the headlines yesterday, and it certainly hit hard. Risk currencies that have stood up ok felt seller force, and we watched the Japanese Yen cause all types of carnage to the EUR, GBP and AUD. The EUR is our focus today, and so is today's ECB meeting. Some talk emerged that due to the banking crisis, we might see central banks pull back from hikes, but for now, that's yet to be confirmed. Was it really rate hikes that caused this or poor risk management at the banks in focus? Based on what I've read, I'm leaning towards the latter. Yes, there's plenty of pressure on the banking sector right now, but does that warrant a policy change from central banks? Has the underlying issue changed? EU inflation still sits at 8.50%. Last year that number was 5.90%. Yes, it's dropped slightly from last month's 8.60%, but it's still there, and it's going to be very interesting to hear from the ECB later today via the policy statement and press conference. Rates are still expected to be increased to 3.50% today, a 50-point rise. Could we see a 25 hike to help calm nerves? Talk presented around this case, but we feel the ECB may stick with the plan. Let's take a look at the EURUSD. Price continues to hold above 1.0535 support. Yesterday's rejection reconfirmed this level, and so far today, buyers continue to trade above it. A lot comes down to the ECB today. We seriously doubt there will be a larger-than-expected hike, so it's about if we see 50 points or a surprise 25 points. 25 should hit the EURUSD and break support. A hold should continue to support that level, but traders will be looking at the statement for future direction and if the recent issues have impacted the current path. ECB rates decision and policy statement will be released Friday at 12:15 am AEDT. The press conference will follow at 12:45 am.
by Eightcap
An incredible interest rate repricing - what comes next?We've seen the fallout from higher for longer and a deeply inverted yield curve - with the failing of SVB Financial and Signature Bank in the US. The market has punished financials feeling we could see far more conservatives lending and tighter regulations - interest rate hikes have come out of the markets, resulting in some of the biggest moves in US Treasury yields in living memory. FX volatility has increased but is not extreme and the USD has been offered - but have the moves gone too far? With US CPI in play, we look at the cross asset setups and assess the flows and trades front of mind.
PEPPERSTONE:NAS100
by Pepperstone
3
So... Recession Confirmed? With oil breaking bullish support, it's safe to say that demand has been cratering around the world. As Jeff Snider has discussed for months now, if the supply constraints on oil aren't driving oil higher, then there must be a serious demand problem. Overheated economy? I think not. Add to that Gold up and Yields down and that means low growth + low inflation. Also not good. So what's the trade? Well, I think we might be at the start of what Alex Gurevich has called the mother of all bull markets in bonds. Some of these options on bonds could pay out 10x to 20x (i.e., eurodollar futures, SHY, TLT, etc). Interesting times to live in.
NYMEX:CL1!Long
by sacredprofit
Japanese have been selling bonds, have Yields peaked for now?One of the reasons US Treasuries, and other bonds, have been selling off is the dumping by Japanese investors. All duration #YIELDS have done well but more so the shorter term. The Inverted Yield Curve has widened over the last few months but has been significantly lately. However, today we see the 1 & 10Yr ($TNX) selling off but the 2 Yr is CRATERING! Interesting. Also interesting is that volume has been waning for investment grade and high yield bonds. Liquidity could be an issue later on if this continues.
TVC:US02Y
by ROYAL_OAK_INC
EURUSD to 1.14 (this week might give us new entry) Powell came out Hawkish today saying interest rates are ‘likely to be higher’ than previously anticipated At the same time the CME FedWatch Tool is now being pricing a 0.50% hike as the most probable scenario (we will know in 14 days from today). Such news would normally make one go Long on USD and that could be the case for a little while but we need to remember: LET THE NUMBER DO THE TALKING (and the Trading): We need to await for the data to come out as the data will dictate what the Feds do and how the Dollar and the euro (as well as the markets) will react. Let's take a look together at what to expect and what to be aware of: 🎖3 Live Trading Sessions (Reports) we can't miss: 🎫Friday March 10th - NFP Employment data Employment is good, Feds can hike easier. My expectation : after such Huge previous reports I expect a lower new Jobs (NFP) number. I will analyze the numbers in detail closer to Friday but my 'hunch' is already becoming sentiment. I would be very surprised to see another explosive NFP number. The last 10 months the results have been in the 'deep green' with the most recent one being over 500k 🎫Tuesday March 14th - CPI Inflation Report The last inflation report came out spooky as it showed inflation didn't drop enough/much. My concern was energy prices, as both Oil and Gas were attempting a rebound. That energy prices rebound was incomplete and that, for me, is the number one factor to expect eased inflation.... which in return can be the best 'chill pill' for Powell and the Feds 🎫Wednesday March 22nd - FEDS Rate Hike The big one. A 0.50% rate hike is in play, Powell comes out bullish in front of the Congress today but it's the data (Jobs and Inflation) that will be decisive. If I am right about NFP and CPI I would expect a 0,25% rate hike. My feeling is that the market and the aware part of the public (including myself) have priced in the scenario of 'Rate hikes close to 6% Powell's statement was "surprisingly hawkish," said Michael Brown, a market analyst in London. With a 50-basis-point rate hike now in play, Brown said a strong monthly jobs report on Friday would likely lead to "calls for a 6% terminal rate," nearly a percentage point higher than Fed officials had projected as of December. Democrats on the committee focused on the role high corporate profits may be playing in persistent inflation, with Senator Elizabeth Warren of Massachusetts charging that the Fed was "gambling with people's lives" through rate hikes that, by the central bank's most recent projections, would lead the unemployment rate to increase by more than a percentage point - a loss associated in the past with economic recessions. In any case, the pressure is ON and this month will 'show'. I am expecting some more dovish days towards the second half of March, the same way things turned Hawkish after last month's data. Not going to focus on Eurozone as Europe is a 'Big, Slow ship' that follows at it's own pace and European Central Bank officials have warned that they expect to raise interest rates to record highs after eurozone inflation for February was higher than forecast, even as economists predict a rapid easing in price pressures from the summer.... in other words, the US hikes could be coming to an end whereas the European's have a long road ahead. CONCLUSION: Not a perfect time to jump on EURUSD longs but the time to increase them is approaching. Perhaps this or next week i can see myself getting on new EURUSD Long positions. My analysis shows 1.09 and 1.14 as key targets for this year, with the scenario of 1.036 being the 'worst case scenario' and a level I would love to see and Long. One Love, The FXPROFESSOR PS. The next 15 days will be HUGE and we must be focused and on alert to grab those opportunities. Check my previous ideas and I hope this one also goes as well.
Long
by FX_Professor
7
So far so good on the BTC Cup and Handle!Traders, In this weekly update, I cover the DXY, VIX, US500, US10Y, US02Y, inverted yield and its significance, Eurodollar, Credit Suisse, unemployment, and the Bitcoin. I'll cover a few anomalies that I am seeing in our current market and explain what they might indicate for future price action. Finally, we will cover that Bitcoin Cup and Handle pattern that I have been projecting for the past few weeks: what happens if it plays out and what happens if it fails. Stew
INDEX:BTCUSD
by stewdamus
Interest rates - Bond yields... Are they really going higher?Recently the market's expectation for the Fed Funds Rate peaking around 5% and then coming down at the end of Q4 2023 changed, with the market now seeing rates going to 5.5%. Many investors/analysts are discussing bond yields heading to 6% and staying higher for longer. However, is that going to happen? What is sentiment telling us right now? What is data indicating? If rates keep going up, what does this mean for other risk assets? Sentiment right now seems to be quite bullish on yields (bearish on bonds). We are probably near a short-term top for bond yields, and I think this Fed hike may be the last one. The reason is that in Q3-Q4, we started seeing an actual economic deceleration, and inflation dropped significantly. In January, we had some weird data that might have to do with seasonality and adjustments on how inflation is calculated. The critical thing to note here is that rising interest rates act with long and variable lags and that the drop in inflation since July 2022 was caused by factors irrelevant to interest rate hikes. So let's take things from the beginning... Since Covid hit, we have seen tectonic shifts in markets. Many things changed in the global economy, which was already in bad shape. It's unlikely that inflation will be contained for a long time, given that we are at the end of the debt cycle, the end of globalization, we are in a war cycle, we are at war against the climate, and the labor market is changing rapidly. Therefore, bonds will likely substantially underperform inflation in the next decade. In 2020 and 2021, fiscal policy was heavily used over monetary policy, and we still feel the effects of those policies and the aftereffects of Covid. US monetary policy started shifting in March 2022, when the Fed began hiking rates and Quantitative tightening in July. Hence the changes in monetary policy couldn't have affected markets, as it takes more than 12 months for changes like this to have any effect. Of course, we also had the Russian invasion, which caused a commodity spike, and we had Europe and the US spending a lot on Ukraine and war equipment broadly. Then the relationship between US and China started worsening, while China was under lockdown and only started reopening in December - January. The global economy is in terrible shape and will get into a steep recession eventually. Some data make it look strong at times, but it isn't. I think the Fed is looking and acting in the worst possible way, and it's trapped. At the moment, markets are afloat mainly because of human ingenuity, past fiscal and monetary stimulus, and the actions of Central banks like the BoJ, HKMA, and PBoC, as well as the BoE and ECB having some form of QE going on, while the Fed & US treasury is increasing market liquidity by draining the TGA, creating T-bills and bank reserves. It's unclear what will happen when all the interest rate hikes start affecting the economy, but Central banks and Governments will resume supporting markets and the economy. There are several tricks they can implement before they start cutting rates or continuing QE, or doing Yield Curve Control, but ultimately they will get to that point. Now finally, let's get to the charts! TLT / UB look like they are bottoming here. Swept the lows but closed slightly above them. Double top and significant gaps are higher, so that's where I think it's headed. I don't want to say that we will go massively lower, but for now, I treat this as a range, and I don't want to let my view that inflation will come down affect me. My target is the range highs and nothing more. SHY looks like it capitulated and filled a double gap (partially) to the downside. That double gap occurred near the bottom, but now we have a massive double gap open to the upside, telling me it could go higher. Both that and TLT tell me yields down (bonds up)! Short-term yields have been increasing, with US 2y getting near 5%. Maybe that's the psychological level everyone thinks will break easily, but it doesn't. The majority is eyeing 6%. Perhaps we do a slight break above 5% on the 2y, then fall quickly below it. The average bond yield (random average) is at 4.5%, it also made a new high, but this could be a trap. I am not seeing much strength here. The 10y, which I used as the base chart for today, reaches a critical level where the major correction to the downside began and has found some resistance there. Finally, I wanted to discuss a few currencies and some overall observations. EURUSD and GBP are at support but looking weak. I can see how they could have one last dip and then higher, but I don't want to see them go much lower from here. USDJPY and USDCNH are trading higher, with USDJPY being 10% lower from where it peaked. The interest rate differential was the same as now or lower, so something is happening here. Maybe rates are peaking? Maybe the interventions from CBs and Govs are working? Stocks are also much higher than back then, and they don't look like they will go down. Both pairs seem to be back in an uptrend which seems close to peaking. Based on how their charts look, I don't think the USD will keep strengthening, which is telling me that something big has shifted in markets, which is bullish risk assets, and potentially bearish on bonds yields.
TVC:US10YShort
by BitcoinMacro
1