We have heard all the arguments about why the Fed should back off on its relentless Funds Rate hiking campaign, usually from bulls, hopers and assorted other casino patrons who want to continue the decades-long party in liquidity-driven asset appreciation.
Then there are the stern, sensible and sober old-schoolers who demand the Fed reclaim its right to call the US financial system the world's most trusted destination for the globe's funds through sound monetary policy.
My personal view is that the above groups are both laying claim to fantasy economics, as the "something for nothing" crowd will see its end at some point down the road when the law of diminishing returns manifests itself within the inflation as economic driver racket they've got going. The stern, sensible types were right; up until the time that the US financial and economic system went so far into the red with debt that it lost all hope of addressing that debt in any palatable way.
The Fed is caught in a loop here. We all know that the leveraged mortgage finance sector is creaking, the consumer is waffling back and forth and the Fed would like nothing better than to get off the rate regime. But here is an argument as to why they can't, and in fact why there is a slight chance of a .50 hike today.
The 10 year yield's break above 5.2% was most unwelcome. Perhaps the Fed will stay the course, raise by .25 and issue the usual commentary. Perhaps this is a false break in the TNX and the Fed's rate hikes will finally begin to bite and inflation "expectations" will finally reverse lower. Perhaps. Or maybe Dr. Bernanke and the other Fed Heads will decide they cannot chance a runaway expectations train. Do or die as they say; raise .50 and let the chips fall where they may.
As a lowly trader, I do not have the answers. But I prefer to do my trading through the prism of the macro-economic backdrop. Bernanke's conundrum is all of our conundrum. Safety and risk management come first. I have been having quite a time following the proceedings here, on the Biiwii Notes Blog. Stop by if you'd like.
