Founders: Here is The Next Six Months Fed Playbook.. they hope

Yellen Now Doing All She Can to Stave Off Recession by Emptying TGA Piggy Bank

If there is a recession, the funds rate will be at 3% in no time.

-Steven Blitz, TS Lombard Chief Economist

So much anger, so much hate, yet unemployment so low; can you imagine the social disorder if unemployment hits 5%; that’s why policy panic comes early in ‘24.”

-Micheal Hartnett

Intro:

Steven Blitz, Chief US Economist for TS Lombard and someone we respect and read here carefully has a post-FOMC report out. In it, he lays out the moving parts and market biases based on yesterday’s pronounced behavior, for the next 6-12 months surrounding Fed behavior. Here is our analysis after a study of that report.

Plus Hartnett’s Flow Show early look

Contents

1. Report Conclusions

2. Powell’s, Yellen’s, and Market Biases

3. Fed Knows Higher Bond Yields Doing Job For Them

4. Powell Implies Bigger growth with even less inflation now

5. Economic Slowdown Momentum is Receding

6. Market Behavior Again Thinks The Fed Will Ease.

7. Yellen Now Doing All She Can to Stave Off Recession

8. For The Next Quarter, The Treasury Will Borrow Less, Spend More

9. Fed Hopes for More Growth, Less Inflation

Report Conclusions

Hiking:

The Fed will not hike again unless inflation pops above 4% or if the Long Bond yield drops back to where it was which re-accelerates housing.

• Inflation popping above 4% seems unlikely in the next 6 months as the pipeline is currently full of disinflationary forces

• Bonds retracing all their losses would make them nervous however

Easing:

The Fed will not ease unless Unemployment goes above 4% with an accompanying recession

• The Treasury’s behavior going forward does the easing for them

Recession/Inflation:

While there is a chance of recession in Q4, the more likely scenario is not that Powell’s ( bigger growth with more disinflation) new idea will not happen, but rather we get a re-acceleration in growth in 2024 with 4%+ inflation back in the pipeline.

Powell’s, Yellen’s, and Market Biases:

Based on what Powell said, the market’s reactions, and the slated actions on deck for Yellen’s Treasury:

We will have an accelerated growth rate without disrupting disinflationary forces (return of Goldilocks)— market agreeing with the Fed’s pitch

The Fed will not raise anymore, and is despite (or because of) the above statement, will ease— That is not the message the Fed was conveying. The market ignored the Fed’s tough talk

Yellen’s Treasury is just now set to facilitate Economic recovery — by saving less and spending more next quarter