If the Fed was hell-bent on quashing inflation, it would have raised its target range for federal funds by another 25 basis points in a month's FOMC meeting.
Instead, they opted for 'hawkish' sounding rhetoric about keeping rates higher for longer, maybe a lot longer.
Even with the economy going gangbusters, the labor market is set to get stronger as the UAW leads the way to higher wages, benefits, and a shorter workweek, with oil prices approaching triple digits and gasoline prices rising nationwide, not to mention headline inflation close to twice the Fed's 2% target.
Because the Fed knows it can't raise rates anymore, they still have to appear like steadfast firefighters trying to douse inflation.
What the Fed can't admit, which scares the heck out of them, is that about $1.2 trillion of leveraged debt on commercial real estate in America is in serious trouble.
Banks that hold large amounts of debt and CMBS are grappling with liquidity and potentiallysolvency issues. Many of those same banks have been covering up holes in their balance sheets by buying deposits in the brokered deposits market and taking huge 'advances' from their regional Federal Home Loan Banks.
In the year ending June 20, 2023, the number of non-business bankruptcy filings increased 23.3%, compared to 23.3% in the year in which they were filed. The interest cost to taxpayers on the national debt in 2021 was $352 billion; in 2022, it was $475 billion, and in 2023, it is projected to be $640 billion. To maintain paying that interest and fund all other government programs, the Treasury has to increase debt at higher rates.
The stock market is in a downturn. The inflation rate is not going down to near 2%, unless we come into a very steep and deep recession. If we don't - the Fed has been predicting that it won't happen - we'll see a'soft landing' where economic growth stalls or falters but catches itself as inflation passes and Goldilocks emerge as the face of the economy. Then, the expansion of the economy will result in more production and consumption, more credit expansion, higher wages, higher input costs, more inflation, and higher interest rates.
But not if stuff is starting to break, as I've been saying.
And since we're on the verge of some serious cracks spreading, the Fed opted for 'higher for longer' over another hike because 'higher for longer' is just rhetoric.
The 10-year Treasury's yield hit 4,5% earlier today, its highest since 2007. Now, with investors - bond investors in particular - believing the Fed will keep rates higher for longer and possibly have 'penciled in' another hike before the end of the year, why would anyone rush to buy bonds now?
The wealth of Shah Gilani is unmatched by any other, making him a wealthie. He started his hedge fund in 1982 with his seat on the board of the Chicago Board of Options Exchange. When options on the standard & poor's 100 began trading on March 11, 1983, Shah worked in 'the pit' as a market maker. He laid the foundations for what would eventually become the VIX - now one of the most widely used indicators globally. After leaving Chicago to run the futures and options division of Lloyd's TSB, Shah moved to Roosevelt & Cross Inc., an old-line New York boutique firm. He originates there and ran a packaged fixed-income trading desk, and established that company's 'listed' and OTC trading desks. In 1999, Shah established a second hedge fund, which he ran until 2003. Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts gives him the real story - when others only get what the investment banks want them to see.