Thus Quantitative Tightening Begins
2022.06.01 17:06
Today’s the day. It’s here at last: the day that the celebrated Federal Reserve begins, once again, the process of ever-so-slowly extracting the trillions of dollars of “accommodation” it fire-hosed onto the financial markets. You wouldn’t know it, judging from the all-green equity futures right now, which frankly don’t seem quite what to do with themselves.
S&P 500 Futures Daily Chart.
Below we see the U.S. Treasury securities held by the good people in the Eccles Building. As the gentle curve a little more than halfway along the graph shows, it tried this Quantitative Tightening once before, but after about a year or so, it ran shrieking for cover and threw everything hard into reverse, changing QT to QE-infinity. Thus, trillions of manufactured dollars later, it is again timidly pulling back just a teensy-weensy bit, hoping not to break the markets that it has fraudulently ballooned to the present risible levels they are at.
Treasury Assets Chart.
Here’s a similar view of the madness, with additional historical data. Pretty sad when you think about it.
Treasury Assets.
In spite of the ceaselessly-cited dual mandate (high employment, low inflation) everything with an IQ above room temperature knows the Fed has only one mandate, which is to keep the simulacrum of prosperity going by way of the equity markets. If perhaps you’re one of the last people on the planet who doubts this, please take note of the gluttonous acquisition of assets by the Fed (black line) and the behavior of the S&P 500 (blue line) whose correlation is awfully, awfully close to 1.0
Treasury Assets And S&P 500 Combined Chart.
Of course, no one believes they are going to make any meaningful dent in their assets before they turn yellow once more and throw everything into reverse for the umpteenth time. But it’ll be cute to watch Fed Chair Jerome Powell pretend to be steadfast and determined for a few months.
