Since the Fed is in play, understanding what they are saying matters more than normal

But it is not always easy

(if anybody can help me out with today's Waller comments, I would appreciate it..)
Waller was pretty clear is the his central case is a decent gap between end of taper and rates lift-off:
But when he talks about risks to his central case, he first mentions a test around the 'remainder of this year'
But later on, the inflation test seems to run 'well into 2022'. So it is not clear how much extra data is needed to turn around
Maybe Waller is just not sure how much additional information is needed to deviate from his central case.

END

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Jens Nordvig

Jens Nordvig Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @jnordvig

20 Oct
It is exactly a month since Evergrande was the only thing anybody could talk about.

Hence, it is a good time to recap market dynamics since Sep 20.

Where is the contagion sticking, and where have we recovered (many places, but not all)

THREAD Image
First, the Chines currency has substantially OUTPERFORMED over the past month. While the EUR and the JPY are down 2-4% vs the USD, the CNY is up around 1% against the USD.

This fits with how they want their currency to behave 'reserve currency like'.

Second, while a crisis normally generates yield declines in major markets, this has NOT been the case in China. Chinese 10Y rates are UP over the past month, as expectations for mon easing has been disappointed (and in sympathy with the global trend). Image
Read 13 tweets
17 Oct
There is a lot of debate about these various measures of inflation expectations. And it is worth thinking hard about their signaling value, including what is the process behind generating the forecasts

(I used to submit them...)
It seems to me, that the key point is, that there may be a break in the process for making such forecasts.
- From simply using the target as the anchor, as opposed to a model.
- To having your econ view potentially override the target
Around the world, we are seeing (economist) inflation forecast starting to really break higher. But mostly for 2021 and 2022, while in G10 (they are still anchored in 2023).
Read 6 tweets
17 Oct
This is not a normal cycle...

I have argued this for many many months now (looking at economic trends).

And NOW monetary policy cycles are starting to look highly unusual too (central banks and yields curves are on the move)

= THREAD

It is not just in the US, that things are suddenly moving VERY fast on the monetary policy and interest rate pricing front.

In the UK, short rates (2y) have moved 40bp in a month. It is the fastest repricing we have seen in more than a decade. Yes, WOW!
In some G10 countries, we have gone from thinking about multi-year forward guidance (and QE expansion), to thinking about a rate hikes.

Norway and New Zealand have already hiked, and in the UK a rate hike next month is being debated.
Read 13 tweets
12 Oct
The dollar is not what it used to be.

A specific example: the correlation to oil...

(short THREAD)
There used to be many arguments why the dollar was NEGATIVELY correlated to oil

1/ The US is more energy intensive
2/ Petro-dollar flow supports other currencies
3/ Other central banks are more sensitive to headline inflation (=energy) than the Fed
And this is how it looked like pre-GFC, EURUSD and oil prices looked nearly identical on the chart (I have admittedly picked the most extreme period, around 2007).

In other words, the USD used to be strongly negatively correlated to oil prices.
Read 9 tweets
6 Oct
Is it a coincidence that bitcoin has broken $50K at the same time as the news media is full of stories about a potential US default as a function of failure to raise the debt ceiling in October?

The chart shows that $BTC (white) spiked exactly as US T-bill yields (yellow) spiked
That is, bitcoin prices moved sharply higher exactly at the same time as short-dated T-bill yields (those maturing after October 18, when Yellen has said Treasury funds will run out) spiked, and embedding a 'default premium'
We cannot prove anything statistically in a sample of one, and if we look at how the dollar is trading, we do not have a global USD decline (the dollar has generally been firm in recent weeks), so it is not a slam-dunk conclusion.
Read 9 tweets
3 Oct
It did a purely anecdotal thread on inflation yesterday, just to illustrate basic aspects of 'inflation psychology'

I got some pushback, so I will add a bit more color. WHAT IS DIFFERENT ABOUT INFLATION IN 2021

First, I am not a person who always worry about inflation. I have been observing how central banks in the period 2008-2019 persistently OVERestimated inflation. Hence, I am always skeptical when I see a confidently aggressive inflation forecast.
Second, the link between money supply and inflation is very far from simple, even if some textbooks (and many observers) pretend it is simple. It is not the money supply growth that is fundamentally new in 2021.

I wrote about that in December 2020...

moneyinsideout.exantedata.com/p/the-big-myth…
Read 20 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

:(