John Williams suggested a few weeks ago that the Fed wouldn’t be beholden to bond markets. As Bloomberg’s Cameron Crise noted earlier, Williams “was wrong.”
The ultimate justification for the change in tune looks to be a downgrade to the inflation profile, even though just six weeks ago the inflation shortfall was deemed to be “transitory.”
It’s hard to escape the notion that the Fed was dragged into this shift by market pricing; it seems as if bond traders are running policy now.
And that is exactly what Jeffrey Gundlach, chief executive of Doubleline Capital, said to Reuters tonight:
…the Federal Reserve is doing “what the bond market says – with a lag.”
“The bond market definitely helped to encourage the ‘Fed pivot’.”
The bond king went further during a discussion on Fox Business, suggesting:
“The bond market has been saying that the Fed’s policy is too tight by a very large amount for the past several weeks, if not few months, and the Fed simply cannot ignore that.”
But, as Gundlach went on, the stock market’s belief that The Fed will hold back the recession (as opposed to the bond market’s much more worrisome outlook), is wrong…
“The three-month bill yield compared to the 10-year Treasury yield has every bit the look of a recession coming within 12 months and maybe within six months because that rate is inverted,” Gundlach said.
“Ironically, a lot of people think if the Fed eases it’ll be an insurance policy against recession. But if past patterns are prologue, if we actually start steepening out the yield curve from an inversion three months to 10 years, that’s actually highly coincidental with the coming recession.”
And tweeted a concise and ominous statement of his thoughts…
Fed message today was essentially: the case for easing has strengthened, we hope that changes soon, if it doesn’t we’re behind the curve.
— Jeffrey Gundlach (@TruthGundlach) June 19, 2019
As Crise concludes, the ultimate justification for the change in tune looks to be a downgrade to the inflation profile, even though just six weeks ago the inflation shortfall was deemed to be “transitory.”
It’s hard to escape the notion that the Fed was dragged into this shift by market pricing; it seems as if bond traders are running policy now.
via ZeroHedge News http://bit.ly/2Xs1IQo Tyler Durden