![]() Many Democrats oppose a prolongation of the SLR relief, why it may prove politically opportune for the Fed NOT to prolong it and come up with a technical solution that politicians won’t be able understand instead. A repo squeeze due to marked shorting of Treasuries, the biggest 1 week drop in Primary Dealer positions in Treasuries and substantially rising Treasury yields are all clues that SLR matters BIG time. The Fed will also have to decide on the potential extension of the SLR relief (exemption on Treasuries in leverage ratios) as it is not as if we haven’t seen the side-effects of the lack of clarity already. Inflation will not just “moderately overshoot” as several of our prime indicators on inflation hints of 2.75-3% core inflation before summer, and will Jay Powell then be able to calmly reiterate that inflation will be allowed to overshoot moderately? We doubt it. Jay Powell will be faced with a truck-load of inflation questions on Wednesday, and if he keeps referring to inflation being allowed to “moderately overshoot”, then we should expect long bond yields to continue up since inflation expectations will likely follow. Americans have started googling inflation like crazy Average Joe feels it immediately when goods like food and gasoline starts rising.Ĭhart 2. Americans google “inflation” to an extent that is completely out of level with anything seen before, which could be a signal that consumer prices are actually starting to pick up markedly. The inflationary consensus is already strong and judging from Google trends, it may even have reached levels never seen since we entered a new millennium. The global manufacturing cycle looks “peakish” It probably matters less (to the Fed) that China is starting to roll over with likely side-effects for commodity markets and global manufacturing during H2-2021.Ĭhart 1. The Fed meeting will be held against a backdrop of a manufacturing business cycle that still gains momentum, and with a service sector that is starring directly into a bright reopening outlook over the coming 3-5 weeks. We have a big central bank week ahead of us, with scheduled monetary policy decisions from the Fed, Norges Bank, BoE and BoJ, and it could prove to be one of the most important weeks in the life of Jay Powell. – House Financial Services Committee Chairwoman, Maxine Waters (D) ![]() “The temporary exclusion to the SLR is a mistake that should not be perpetuated after it expires at the end of this month” We enter the meeting leaning short in EUR/USD and bonds. The political pressure is building and the SLR-relief may not be prolonged. It could be time for Jay Powells “taper tantrum” as SLR-stakes are high ahead of the FOMC meeting on Wednesday. Authored by Andreas Steno Larsen and Martin Enlund via Nordea,
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