This, Not the Rate Hike, Spooked the Markets Yesterday

Research
1

The market dropped yesterday on the Fed announcement. Was this drop caused by interest rate hikes or something else?

See This, Not the Rate Hike, Spooked the Markets Yesterday

This theory can be easily be verified by looking at the timeline of yesterday’s market drop.

2

Flight to safety. TLT up big.

3

If the Fed is shedding it’s longer-term bond holdings, selling them into a market with stronger demand would seem to mitigate the restrictive effect of double-tightening. Are investors now helping the Fed get back to its goal of normalizing monetary policy?

4

When the Fed sells its holdings, investors have less money in aggregate to invest. Less money to invest, means lower demand. Lower demand causes price drops (assuming supply remains the same). It’s basic economics.

5

Has the velocity of money circulating through the economy actually picked up significantly (like M2)? It has been heading steadily down. I remember Marc G saying he felt this was important to. In 2017 it reached a 55 year low but has ticked up a tiny bit lately. Is it turning around?

6

In QT, the Fed is letting bonds mature and roll off the balance sheet. They are not sellers. They are simply not replacing.

7

Thanks for the correction, Parker.