The Fed just missed another opportunity to reign this in but did nothing...
Check out I bonds now paying over 7% to fight this criminal inflation
Well, they did about what I was expecting. In fact, they sound slightly more hawkish than I was hoping.
They first have $60 billion (biiiiiillllion)
per month bond buying QE they have to wind down before raising rates. You can't just yank the rug out from under the market all at once. (Though they should have started in 2010. ) I hate to be a Fed defender, but putting past mistakes aside, they did what I thought they needed to do. But you have to give the market some time to digest and come to terms with the new reality. The punch bowl is being removed (in earnest I believe) for the first time in 20ish years. That's not going to happen in a single day, but this was a clear shot across the bow of a lot of traders who simply didn't believe this day would ever come. It's going to take a little while for the implications to fully sink into the minds of a lot of the young guns on Wall Street.
My fear was that they were going to be locked in to feel-good self-delusion and not realize they need to drastically change course. What I have seen is encouraging. It's all about telegraphing your future moves well ahead of time to hope to prevent surprise/panic. They've announced "Last Call" and they have signaled that the punch bowl will be removed. No one expected they would raise rates today. That would have been a disaster without setting expectation ahead of time. Though it would have been fun to watch.
But, the party is over. I still expect a year end run up and the obligatory Santa-Rally. It'll take a couple of months for the QE taper to start being felt. The first real rate change in June will convince the remaining hold-outs that yes, this is not a drill this time.
Thing is, the majority of traders on Wall Street were in grade-school the last time we had rates that were not 0% or so close to 0% to not make a difference. They have no experience trading in that environment and are still having a hard time swallowing what the math is telling them the effects on the current extreme bubble valuations. They have the charts and the math, but they still can't bear the conclusion. Bonus' are only made in a rising market. Show me the financial incentive and I'll tell you what people want desperately to convince themselves.
To paraphrase the comment of one older trader I saw recently:
There is still a lot of unwillingness of young traders to accept what's coming. They understand; They just still can't believe.
These are the youngsters with their hands on the controls of the market. If that doesn't make your sphincter pucker a bit, then you should go see a doctor.
But, alas, I think the Fed is trapped. Too much to unwind with too little time to do it without a lot of pain no matter what. Inflation is already getting annoying. I just got back from the store. A 4-pack of some not particularly impressive looking Kroger steaks $60. By mid next year, it will be worse I think. I think average American's will be screaming bloody murder about prices.
