Fed Hold Rates, Drops QT & Yellen Bails Out Banks

Last night was one of the more anticipated Fed meetings, and it didn’t disappoint. No one really expected them to raise rates, amid persistent inflation and worsening economic conditions so the Fed, staring into the headlights, held rates steady. But it’s what they did with their Quantitative Tightening (QT) program that surprised.

Before the meeting we saw more poor economic data across a range of metrics which paints the following incredibly stagflationary picture of increasing inflation and weakening growth (courtesy of Bloomberg).

Hardly encouraging. And so the Fed have elected to maintain the current 5.25%-5.5% Fed Funds Rate target range but then slashing its QT bond buyback program by more than expected from $60b per month to just $25b to relieve some of the high bond yield pain we discussed here. The market’s reaction was immediate with shares, bonds, bitcoin and gold all taking off before shares and bitcoin reversed sharply whilst gold held strong and the U.S. dollar dropped amid even more massive volatility in the Yen with the USD/JPY plummeting amid wide speculation of central bank manipulation.

Indeed, since the last Fed meeting 2 months ago, gold has sniffed out the Fed & Treasury’s dire predicament and been the strongest asset…

Gold was further bolstered by U.S. Treasury Secretary Janet Yellen quietly introducing what looks very much like another bank bailout now that her BTFP bank bailout program has finished.

Cutting to the chase… They are actively already looking to ramp up liquidity as they, quite frankly, have to. Global Macro Investor’s Raoul Pal summarises nicely…