Yes, Wednesday is FED day and the markets are expecting a 50 basis point increase in the FED FUNDS RATE to a range of 0.75% to 1%. The most important issue will be the size of the balance sheet unwind and whether Chair Jerome Powell is good to his heightened concerns about headline inflation means a full throttle on balance sheet shrinkage, reaching the full $95 billion a month at a quick pace. So Jerome, let’s have at it and let the markets decide the impact on myriad asset classes. In 2018, this double shotgun of QT and interest rate hikes proved too much for the highly leveraged global markets. Now that the Fed’s balance sheet is twice as large let’s see how it will affect the leverage in the global system.
The most interesting aspect of the FOMC meeting and Powell press conference is whether there’s any concern about the 12% rise in the U.S. dollar since the beginning of the year. Every other central bank discusses interest rates and the value of its currency but the most important central bank never discusses the value of the DOLLAR. Will we get a sea change?
On Tuesday I recorded another Financial Repression Authority podcast with Richard Bonugli and Thorsten Polleit, a highly regarded finance professor from Frankfurt, Germany. This is a euro-centric discussion and well worth a listen in effort to truly understand the significance of the European Union and ECB going forward. Enjoy some fine whiskey and give it a listen before the FOMC decision Wednesday afternoon.