Fed Policy Forecast🧵
This is a timeline and thread open to criticism (constructive please, not 'orange man bad'). I hope others will throw some rocks at this and we all are better for it.
*Fed doesn't raise before Q1 2023 earliest and AFTER QE tapers off.
This is a timeline and thread open to criticism (constructive please, not 'orange man bad'). I hope others will throw some rocks at this and we all are better for it.
*Fed doesn't raise before Q1 2023 earliest and AFTER QE tapers off.
2/J. Powell is focused on full employment that according to the Fed we DID NOT achieve post GFC. The new AIT regime allows inflation to run🔥so it averages 2% over some period. He is consistently dovish in this regard IMO.
3/The highest BLS employment is Feb20 - 152,523,000 so we need to achieve at least that before J.Powell begins tightening and included in that discussion is QE currently $120B+/month.
4/My forecast I am inviting criticism is based on these assumptions:
•The Fed will achieve >= prior employment levels BEFORE tapering QE
•FOMC will taper QE BEFORE raising FF. They will taper ~$10B/Month and take ~1 year to wind down QE
•Equity ⬇️20% stops tightening
•The Fed will achieve >= prior employment levels BEFORE tapering QE
•FOMC will taper QE BEFORE raising FF. They will taper ~$10B/Month and take ~1 year to wind down QE
•Equity ⬇️20% stops tightening
5/Current BLS Employment is 144,120,000. 8,403,000 < Feb 2020 level. If we add jobs at the same rate as this week's report we need 9 more months to hit pre-COVID levels that is Jan 2022.
•Too optimistic or pessimistic?
•QE tapering will begin March2022
•Too optimistic or pessimistic?
•QE tapering will begin March2022
6/QE Tapering will take a year ASSUMING no equity drawdown approaching 20% at which point FOMC folds and stops tapering, all bets off, potential currency crisis.
If all goes well QE ends Feb 2023
If all goes well QE ends Feb 2023
7/First Fed Funds increase is late Q1 2023. Some measures forecast sooner. I think 'the market' doesn't trust Powell and thinks FOMC will tighten (taper QE then raise FF) in anticipation of 2%+ inflation and full employment. I read him differently.
8/So what say you #fintwit? I've a host of reasons this may play out faster or more slowly, but I am mostly here to learn. School me in the art of monetary policy prognostication.
This the employment gap from BLS. 
Good follow up poll from Kai @MacroTechnicals
https://twitter.com/MacroTechnicals/status/1379119001222152192?s=20
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