Tag: news

Authored by Lance Roberts via RealInvestemntAdvice.com,

Did the Fed’s “monetary policy experiment” fail? The recent dislocation between consumer confidence and the financial markets may indicate just that.

“U.S. consumer sentiment dropped sharply in early August to its lowest level in a decade, in a worrying sign for the economy as Americans gave faltering outlooks on everything from personal finances to inflation and employment,” – Reuters

However, to understand why I am asking the question, we have to revisit whatBen Bernanke said in 2010 to support the idea of a second round of “Quantitative Easing.”

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose, and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”

What he is referring to is known as “Animal Spirits.”

Animal spirits came from the Latin term “spiritus animals,” which means the “breath that awakens the human mind.” Its modern usage came about in John Maynard Keynes’ 1936 publication, “The General Theory of Employment, Interest, and Money.” Ultimately, “animal spirits was adopted by Wall Street to describe the psychological factors driving investor actions.

Specifically, Ben Bernanke realized that investors would respond to that stimulus and increase asset prices by providing accommodation.

In other words, as long as individuals “believe” the Fed is lifting asset prices higher, they take action buying stocks and driving asset prices higher. Thus, investor actions deliver the desired outcome.

It Was All Going According To Plan

Since the Fed began its monetary interventions, the correlation between the asset prices and confidence remains high.

As noted, the entire premise of monetary policy was to spur consumer spending. Everything seemed to be according to plan.

The problem was that while the Fed lifted asset prices, the economy didn’t strengthen as expected. As discussed recently:

“However, while the Federal Reserve got the desired outcome of increasing asset prices, “quantitative easing” failed to “trickle down.” Despite the massive expansion of the Fed’s balance sheet and the surge in asset prices, there was relatively little translation into wages, full-time employment, or corporate profits after tax which ultimately triggered very little economic growth.“

“Since 2007, the stock market returned nearly 200%, which is more than twice the growth in GDP and nearly 4-times the growth in corporate revenue. (I use SALES growth as it happens at the top line of income statements and is not subject to as much manipulation.)”

Again, it was all going according to plan, sort of.

Until now.

Did The Monetary Policy Experiment Just Fail?

“Over the past half century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy,” Richard Curtin, chief economist for the University of Michigan’s Surveys of Consumers, said in a release. Two of those larger month-over-month movers were April 2020 amid the pandemic and October 2008, during the financial crisis.” – CNBC

The decline was extremely sharp.

“Not only was the release dramatically worse than the last update, but it was a huge miss relative to expectations. Today’s release came in 11 points below expectations. The only other month going back to 1999 that even comes close was a 9.9 point miss in February 2004.” – Bespoke Investment Group

The mainstream analysis missed that the correlation between confidence and markets broke down in 2019. Notably, while the Fed is engaged in monetizing $120 billion in debt monthly, higher asset prices isn’t inflating confidence.

That breakdown of consumer confidence will likely show up in consumption in the coming quarter. Such is mainly due to stimulus and other financial supports fading.

A decent warning sign such may be the case was the weak retail sales report this past week. The large gap between retail sales and employment will likely get filled sooner than expected and not necessarily by higher employment.

If the most giant “monetary policy experiment” just failed, the Fed has an enormous problem.

The Problem For The Fed

Over the next couple of weeks, all eyes are on the Fed. Lately, there has been an abundance of communication from Fed members discussing the need to “taper” its monetary interventions.

As Morgan Stanley recently noted:

“If the July FOMC minutes suggest that there was strong consensus and Chair Powell’s indication on tapering at Jackson Hole is therefore much firmer, we could see that as consistent with the FOMC gearing up to move on tapering sooner.”

Such is something the markets are probably not ready for.

So far, market participants have ignored weakening economic data, the collapse of Afghanistan, and rising risks of infections across the U.S. As long as the Fed is engaged in providing liquidity, the “risk of missing out” outweighs being more conservative with allocations.

However, the Fed remains trapped between two very tough policy choices.

The system has elevated inflation levels, as indicated by the spread between the PPI and CPI inflation measures. Currently, with PPI at the highest spread to CPI in history, it suggests producers can’t pass on costs to customers. Such equates to weaker profit margins and earnings in the future. However, if they elect to pass those costs onto consumers, such will raise living costs well above wages.

With unemployment levels dropping, and inflation rising, the Fed should be tapering monetary policy.

However, the reduction in liquidity will trigger a decline in asset prices, hinder consumer confidence, and contract economic growth further.

It’s a tough choice.

Conclusion

We agree with Morgan Stanley’s assessment on the likely path of “taper” when it comes.

“The path of least resistance is to follow the path most traveled, that is, the playbook established in the last cycle when the Fed began to reduce its purchases of longer-term assets following the 2013 taper tantrum. That playbook included a long lead-time to signal the start, a promise that tapering would be gradual and flexible, and assurances to the market that tapering would have nothing to do with the timing of first rate hike. Indeed, the Fed did not first raise rates until six months following the end of tapering.”

While such is undoubtedly the path of least resistance, it is unlikely the market will like it much. As discussed in “3-Signs Of The Next Bear Market:”

“Therefore, it should also not be surprising that when the Fed starts ‘tapering’ their bond purchases, the market tends to witness increased volatility. The grey shaded bars in the chart below show when the balance sheet is either flat or contracting.”

Notably, the time from the initial tapering of assets and a market correction is almost immediate.

If “monetary policy” has lost effectiveness in supporting consumer confidence and “animal spirits,” the significant risk to investors could be a market decline the Fed cannot halt.

Currently, investors are highly confident the Fed can support markets against any risk.

But what if they can’t?

While the State Department has warned the thousands of Americans still in Afghanistan that they are on their own when it comes to finding safe passage to the Kabul airport, which remained mobbed on Thursday, as it has been for the prior five days as thousands of Afghans and foreigners attempt to flee as the Taliban retake control of the country, WSJ.

Even after the US sent thousands of soldiers to secure the airport while evacuations continue, many Afghan passengers, including those with SIVs (Special Immigrant Visas) are still finding it next-to impossible to get out.

A man who has an approved SIV gave up entering Kabul Airport after over 24 hours attempt. “We were stuck be­tween the ag­gres­sion of the Tal­iban and U.S. forces in the gate,” said the man. “I don’t know if I will ever be able to get out.”@SaeedShah and I report. https://t.co/Z7U46fibyx

— Ehsanullah Amiri (@euamiri) August 20, 2021

The US has tried to accelerate what has been an insanely chaotic evacuation process by rushing thousands of troops and diplomats to the Kabul airport, the last place in Afghanistan under Nato control. Americans are in constant contact with their Taliban counterparts (whom they just finished battling for 20 years) to ensure evacuees can reach the airport. But even this isn’t enough. As the NYT put it, “the reassurances from Washington belie the fear and futility on the ground.”

While the violence and gunshots have temporarily subsided, WSJ reports that military personnel fired tear gas into the crowds of Afghans trying to enter the airport on Friday, despite the Pentagon’s promise to “restore order” at the airport. The three entry gates to the airport remain blocked.

Videos have shown women, children – even babies – being hoisted over the airport’s blast walls and tangles of razor wire to US soldiers on the other side. One particularly striking image of a baby being passed over the wall is making the rounds on social media.

#Afghanistan WATCH: A small, crying baby was passed over razor wire into the hands of a United States soldier guarding Kabul airport on Thursday. pic.twitter.com/eveNOewsDz

— Catherine Herridge (@CBS_Herridge) August 20, 2021

Meanwhile, at least two US officials have described growing impatience within the Biden Administration over the State Department’s inability to process visas more quickly. Because of these delays, and the difficulty of reaching the airport, some flights with Afghans are leaving while only partly full.

As of Thursday afternoon – the most recent count available – the American military had evacuated 7K Americans, Afghans and others since Saturday. That’s well short of the 5K to 9K passengers a day that the military will be able to fly out once the evacuation is at full throttle, officials said.

As one policy wonk complained to the NYT, the chaos at the airport “could have been avoided” if the Biden Administration had simply factored evacuations into its plans for pulling out American troops.

“There are tens of thousands of Americans and Afghans literally at the gate,” said Sunil Varghese, the policy director for the International Refugee Assistance Project. “This could have been completely avoided if evacuation was part of the military withdrawal.”

Other western countries are having more success exfiltrating their citizens and Afghans granted residency status partly because they’re using special forces and others to guide passengers to the airport, ensuring they can easily get inside and make their flights. After a German was shot Friday trying to enter the airport, Germany has dispatched armed helicopters to ferry Germans to the airport, though they would only be deployed in “extraordinary circumstances.” France meanwhile has sent three transport planes to Kabul along with special forces to escort French nationals to the airport. The British have succeeded in evacuating 963 people from Kabul over the past 24 hours. But with time running out, and the process of getting people to the airport remaining “immensely difficult,” one British commander told WSJ that there’s still a strong possibility that some people will be left behind.

“Eventually the air bridge will have to close and quite possibly not everybody will have been got out. That’s what keeps us awake at night. That’s what’s motivating to us to work as hard as we are to ensure that those numbers are the absolute minimum,” he said.

Will we hear a similar admission from President Biden during his planned address to the nation Friday afternoon? We think that’s doubtful. But it doesn’t mean it won’t happen…

You know those plastic Covid-19 barriers which sprung up everywhere to physically separate us for the past 18 months? It turns out they probably don’t help, and may make things worse.

In short, what may work for droplets does not work on an aerosolized virus.

According to the New York Times, “scientists who study aerosols, air flow and ventilation say that much of the time, the barriers don’t help and probably give people a false sense of security. And sometimes the barriers can make things worse.”

In addition to stifling airflow and ventilation, the barriers can deflect germs to innocent bystanders such as another worker or customer.

Under normal conditions in stores, classrooms and offices, exhaled breath particles disperse, carried by air currents and, depending on the ventilation system, are replaced by fresh air roughly every 15 to 30 minutes. But erecting plastic barriers can change air flow in a room, disrupt normal ventilation and create “dead zones,” where viral aerosol particles can build up and become highly concentrated. -NYT

“If you have a forest of barriers in a classroom, it’s going to interfere with proper ventilation of that room,” said Virginia Tech professor of civil and environmental engineering, Linsey Marr. “Everybody’s aerosols are going to be trapped and stuck there and building up, and they will end up spreading beyond your own desk.”

That said, there are ‘some situations’ in which the clear shields might be protective – as they can stop wet sneezes from splattering on others, but Covid-19 is largely spread via aerosol transmission – which laughs at plastic barriers (and masks alike).

A study published in June and led by researchers from Johns Hopkins, for example, showed that desk screens in classrooms were associated with an increased risk of coronavirus infection. In a Massachusetts school district, researchers found that plexiglass dividers with side walls in the main office were impeding air flow. A study looking at schools in Georgia found that desk barriers had little effect on the spread of the coronavirus compared with ventilation improvements and masking.

Before the pandemic, a study published in 2014 found that office cubicle dividers were among the factors that may have contributed to disease transmission during a tuberculosis outbreak in Australia.

British researchers have conducted modeling studies simulating what happens when a person on one side of a barrier — like a customer in a store — exhales particles while speaking or coughing under various ventilation conditions. The screen is more effective when the person coughs, because the larger particles have greater momentum and hit the barrier. But when a person speaks, the screen doesn’t trap the exhaled particles — which just float around it. While the store clerk may avoid an immediate and direct hit, the particles are still in the room, posing a risk to the clerk and others who may inhale the contaminated air. -NYT

“We have shown this effect of blocking larger particles, but also that the smaller aerosols travel over the screen and become mixed in the room air within about five minutes,” said University of Leeds professor of environmental engineering for buildings, Catherine Noakes. “This means if people are interacting for more than a few minutes, they would likely be exposed to the virus regardless of the screen.”

According to a 2013 study conducted by Noakes on the effect of partitions between hospital beds, while some people were protected from germs, the plastic barriers funneled the air towards other people in the room. She says that most screens she’s seen are “poorly positioned and are unlikely to be of much benefit.”

“I think this may be a particular problem in places like classrooms where people are present for longer periods of time,” Noakes continued. “Large numbers of individual screens impede the airflow and create pockets of higher and lower risk that are hard to identify.”

One has to wonder, what else isn’t working right now?

According to Dr. Marr of VT, “One way to think about plastic barriers is that they are good for blocking things like spitballs but ineffective for things like cigarette smoke,” adding “The smoke simply drifts around them, so they will give the person on the other side a little more time before being exposed to the smoke. Meanwhile, people on the same side with the smoker will be exposed to more smoke, since the barriers trap it on that side until it has a chance to mix throughout the space.”

Those who may be at least partially protected by a plastic barrier include bus drivers, bank cashiers, or doctor’s office clerks, whose barriers are often substantial.

“If there are aerosol particles in the classroom air, those shields around students won’t protect them,” said UC Davis incoming dean of engineering, Richard Corsi. “Depending on the air flow conditions in the room, you can get a downdraft into those little spaces that you’re now confined in and cause particles to concentrate in your space.“

The problem, experts say, is that most people in charge of erecting barriers in offices, restaurants, nail salons and schools are not doing so with the assistance of engineering experts who can evaluate air flow and ventilation for each room. -NYT

“Air flow in rooms is pretty complicated,” said Corsi. “Every room is different in terms of the arrangement of the furniture, the height of the walls and ceilings, the vents, where the book shelves are. All of these things have a huge impact on the actual flow and air distribution in a room because every classroom or office space is different.“

By Michael Every of Rabobank

Buy-all-the-stocks and Boom?

Readers will know my view that we are living in a black comedy. There is plenty of evidence of this, but US President Biden saying it is the Taliban who are in the midst of “an existential crisis” takes the biscuit today given the US is charging $2,000 for its citizens to be evacuated from Kabul while refugees go free, and the Wall Street Journal both reports the White House *was* told Afghanistan would likely collapse back in July, and op-eds “How Biden Broke NATO”.

Black comedy dates back to antiquity, but was defined academically by Sigmund Freud’s 1925 essay ‘Humour’ as when: “The ego refuses to be distressed by the provocations of reality, to let itself be compelled to suffer. It insists that it cannot be affected by the traumas of the external world; it shows, in fact, that such traumas are no more than occasions for it to gain pleasure.”

Which brings me to markets. There is always slapstick comedy on Wall Street: e.g., banks opening wealth management shops in China just as China launches a “wealth redistribution” campaign (and shares of European luxury brands slump, showing it is real), or buying shares in Chinese firms that are IOUs in the Caymans. There is surreal comedy: e.g., NFTs –literally infinite digital flatulence– becoming an ‘asset class’ as a hedge against fiat inflation. There are (illegal!) inside jokes: e.g., when certain names tell us to buy something they actually want to get out of. And there are bad jokes: e.g., central-bank inflation and growth forecasts. Yet right now, the most important dynamic is black comedy, in that traumas are no more than occasions to gain pleasure.

One of the grand-daddies of US black comedy is 1967’s ‘The Producers’ by Mel Brooks. In it, failed Broadway producer Max Bialystock and nervous accountant Leo Bloom embark on a scheme to create the most offensive musical ever – “Springtime for Hitler”. They have sold tens of thousands of percent of the profits to elderly investors, and have only put a small portion into the production, so if the show bombs, they make a fortune, but if it’s a hit, they go to jail.

By parallel, are the Fed really unable to see that the US and Chinese economies are slowing; that US fiscal stimulus soon becomes a fiscal cliff; that food prices are up 31% y/y with more to come; retail energy prices will be high into autumn/winter; and that, as Treasury Secretary Yellen points out, Delta is a concern? If they taper into this then it will be slapstick comedy for markets, the kind where you get punched in the face: Commodities are slumping, iron ore -26% this month; 10-year US Treasury yields have gone from a low of 1.14% to a high of 1.37% and back to 1.24%; and AUD shows how much underlying optimism there is at 0.7150 when it was as high as 0.7423 weeks ago.

If you think central-bank-ily, would you not want to be leaning towards MORE not LESS QE now? All you can ever do is throw excess liquidity at problems (regardless of the fact that while some gain pleasure from it, many problems are actually caused by it). If so, how could you find the excuse to do more QE?

How about the stock-market bombing? That might even help the White House scare enough senators to push through fiscal stimulus. (Which QE will then ‘pay for’.) As Bloom discovers in 1967: “Amazing. It’s absolutely amazing. Under the right circumstances, a producer could make more money with a flop than he could with a hit. Hmm…Yes, it’s quite possible. If he were certain that the show would fail, a man could make a fortune!”

So how to best produce a market flop? How about talking up the monetary policy equivalent of “Springtime for Hitler” – tapering QE into a synchronised deflationary slowdown!

However, just as Bialystock and Bloom run into unexpected problems with too-competent incompetents, the Fed is being hamstrung by the stubborn US equity market trend of Buy-all-the-stocks and Boom. US equities just keep shrugging off the gloomy background and Fed tapering rhetoric, effectively saying “We’ve heard that one before!” (Or, “The other shows on Broadway are even worse”.)

Yet the more stocks refuse to go down, the more the Fed might actually have to proceed with a QE tapering it may not want to actually commit to given it will likely end so badly for its beloved equities – and already-wobbling EM FX. Or it will have to try to find some other way to stop the show from being a hit. In ‘The Producers’, B&B try to physically blow up the theatre their show is playing at – what is the potential equivalent for the Fed, one wonders?

There is another potential punchline though. The Fed tapers QE, markets tank as they see they weren’t in on the joke, and then it has to quickly reverse policy “because markets”. But then everyone, including the increasingly-angry general public, gets to see that central banking –like the Pentagon– is now seemingly just a clown show. They would see that extraordinary monetary stimulus and society-destabilizing asset inflation is all the Fed ever has in the locker, and that Build Back Better is just a squirty-water flower. That isn’t funny at all; it’s tragicomic for all of us.

And, unlike in ‘The Producers’, don’t expect anyone to end up in Sing singing ‘Prisoners of Love’. But on the upside, there will be even more money floating into flatulent NFTs, which is amusing in a fin-de-regime kind of way.

Of course, if you strongly disagree with all of the above hypothesis, just take is as a joke.

Just when you thought you would never belly laugh harder than when Elon Musk decided to demonstrate the Cybertruck’s shatterproof windows, along comes AI Day 2021 – a day that we’re certain is going to live in Tesla-infamy for one reason or another.

Naturally, having solved the issues of making cars profitably and achieving the company’s goal of 1 million robotaxis on the road, Tesla took yesterday’s event as an opportunity to reveal their next game changing product that doesn’t exist, a humanoid robot. 

“It’s basically going to start dealing with work that is boring, repetitive and dangerous,” Musk said of the product that doesn’t exist yet. 

Despite not yet having a prototype, that didn’t stop Musk from claiming the robot would have a “profound” impact on the economy in the future. He also predicted that physical work would be a choice in the future and that universal basic income would be necessary, according to CNN.

Instead of actually presenting a prototype at AI Day, the presentation went full MDMA and instead introduced a person in a bodysuit that resembled the robot design, to breakdance on stage to dubstep music.

THIS JUST HAPPENED I’M NOT KIDDING$TSLAQ pic.twitter.com/Ayc9KemaUI

— TC (poorly dancing robot) (@TESLAcharts) August 20, 2021

The proposed robot will be five feet, eight inches tall and weigh 125 pounds. Musk told the audience it will have a screen for a face that displays “useful information”.

Musk said of the non-existent prototype: “Can you talk to it and say, ‘please pick up that bolt and attach it to a car with that wrench,’ and it should be able to do that. ‘Please go to the store and get me the following groceries.’ That kind of thing. I think we can do that.”

“We hope this does not feature in a dsytopian sci-fi movie,” he nervously joked. There’s no word on whether or not the humanoid robot will be powered by Neuralink or Solar Roof panels.

Recall, we noted yesterday when GLJ Research’s Gordon Johnson took to CNBC to offer up a rare moment of realism about Tesla’s actual track record for products and claims announced during these major events.

“My question is: why should we believe anything that’s going to be said at AI day 2 when all the prior days were defined by complete fabrications or something close,” Johnson said heading into AI Day.

“A lot of promises made, nothing kept,” Johnson argued. And given yesterday’s circus at AI Day, that looks like it could continue to be the ethos for Musk and Tesla going forward.

Johnson’s arguments from yesterday – namely that Musk’s events are almost always nothing more than full-on jumping the shark, with little substance – were laid out perfectly in a Tweet by FinTwit member and Tesla skeptic @JCOveido6 on Friday morning.

He showed the claims made by Musk regarding Full Self Driving and robotaxis…

…stacked up against the cold hard reality of what has actually taken place.

And we’re certain at some “AI Day” in the future, we’ll be debunking yet another list nonsense projections, only this time about humanoid robots.

Many Democratic leaders, including – most notably – Nancy Pelosi refuse to let go of the notion that the Jan. 6 “attack” on the Capitol was a terror attack on par with 9/11 or the Pulse nightclub shootings. Why? Because, they claim, the whole seige was planned and perpetrated by shadowy militia groups like the Oath Keepers, working in concert with Republican lawmakers.

Dems also blame President Trump for instigating the incident (the supposed reason behind Twitter and Facebook banning his accounts).

But according to a scoop from Reuters published Friday, prosecutors who once planned to try and lay charges of sedition, conspiracy or other serious offenses against members of the Oath Keepers and other militia groups have been stymied by the reality of what actually happened. And now that the first (surprisingly stiff) jail sentences have been handed down, the FBI has apparently determined that there’s “scant evidence” to suggest that the events of Jan. 6 resulted from an “organized plot”, according to a scoop published by Reuters.

In other words, it’s a repudiation of prosecutors’ claims that “trespassing plus thought crime = terrorism”.

The FBI tells Reuters that “95%” of these cases are “one offs”. And even among the “5%” who were more organized, there is still no evidence of a “grand scheme” to overthrow Congress and install President Trump for a second term.

Though federal officials have arrested more than 570 alleged participants, the FBI at this point believes the violence was not centrally coordinated by far-right groups or prominent supporters of then-President Donald Trump, according to the sources, who have been either directly involved in or briefed regularly on the wide-ranging investigations.

“Ninety to ninety-five percent of these are one-off cases,” said a former senior law enforcement official with knowledge of the investigation. “Then you have five percent, maybe, of these militia groups that were more closely organized. But there was no grand scheme with Roger Stone and Alex Jones and all of these people to storm the Capitol and take hostages.”

But that’s not even the most disappointing bit for Pelosi, who is trying to use her Jan. 6 Committee to punish GOP colleagues. Because the FBI also told Reuters that there’s no evidence that Trump, or people around him, were involved in organizing the unrest.

But the FBI has so far found no evidence that [Trump] or people directly around him were involved in organizing the violence, according to the four current and former law enforcement officials.

The report specifically cited “dirty trickster” Roger Stone (who was famously taken into custody by a SWAT team for a perp walk in front of CNN cameras) and InfoWars founder Alex Jones.

Stone, a veteran Republican operative and self-described “dirty trickster”, and Jones, founder of a conspiracy-driven radio show and webcast, are both allies of Trump and had been involved in pro-Trump events in Washington on Jan. 5, the day before the riot.

FBI investigators did find that cells of protesters, including followers of the far-right Oath Keepers and Proud Boys groups, had aimed to break into the Capitol. But they found no evidence that the groups had serious plans about what to do if they made it inside, the sources said.

The findings could also help the 40 or so defendants who belong to militia groups, and are facing more serious conspiracy charges. As we first learned a few weeks ago, prosecutors feel they don’t have enough evidence to lay charges of “seditious conspiracy”, or use the RICO act to target militia groups as if they were an organized criminal gang.

But one source said there has been little, if any, recent discussion by senior Justice Department officials of filing charges such as “seditious conspiracy” to accuse defendants of trying to overthrow the government. They have also opted not to bring racketeering charges, often used against organized criminal gangs.

Senior lawmakers have been briefed on the FBI’s findings and find them “credible”, according to Reuters. The ultimate takeaway is this: while some groups may have discussed the rally and attendant protest in advance, and while they ultimately may have “worked together” on the day in question, there’s simply no evidence of a grand conspiracy headed by a single nefarious ringleader (not Stone, not Jones, not even Trump).

Prosecutors have filed conspiracy charges against 40 of those defendants, alleging that they engaged in some degree of planning before the attack. They alleged that one Proud Boy leader recruited members and urged them to stockpile bulletproof vests and other military-style equipment in the weeks before the attack and on Jan. 6 sent members forward with a plan to split into groups and make multiple entries to the Capitol.

But so far prosecutors have steered clear of more serious, politically-loaded charges that the sources said had been initially discussed by prosecutors, such as seditious conspiracy or racketeering.

The FBI’s assessment could prove relevant for a congressional investigation that also aims to determine how that day’s events were organized and by whom.

With seditious conspiracy now off the table, the most serious charges are likely to be the assault on an office charges, which carry a penalty of up to 20 years in prison.