Fed is designing the slowdown

In the April 15, 2022 edition of Macro Extremes, I noted that until that moment, the U.S. 10 year bond yield had never registered an Overbought reading on a Monthly basis…….and it stayed there for the past few months.

Furthermore, it coincided with the yield trading up to 2.5 standard deviations above its monthly rolling mean.

The chart below shows circles and boxes when it has hit both 2.5 and 3 standard deviations.

Why the reprise of this topic?

I don’t believe Jerome Powell’s 2022 Jackson Hole declaration that the Fed will earnestly raise rates higher will actually happen.

I won’t bother speculating whether rates are raised once or twice as 2022 comes to a close but I think Mr Powell is now trying to increase the rhetoric and use as much media messaging to help manufacture a slowdown or a decline in demand, if you will.

Yesterday’s note touches on the quantum of the rate increases from the troughs.

Even the peak of Volker’s hikes signalled the beginning of a ‘bottoming process’ for the equity market.

In fact, many of the peaks in the monthly chart below correlated with lows in the S&P 500.

August 28, 2022

by Rob Zdravevski

rob@karriasset.com.au

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