Links on bonds, the yield curve, trade and much more
We should expect the Fed's tightening to continue. But a lot of the recent incoming data has been soft. And while this may just be a blip, I expect the curve to flatten further by mid-year.
The possibility of the Fed causing the curve to invert is real. We will have 12-18 months at most to see what happens economically.
With Europe, when the economy turns down, that’s when the acrimony will be greatest. And that’s when I would worry about really bad outcomes.
Normally, we think of trade as a story of spendthrift nations 'living beyond their means' and saver nations being productive. In this view, savers are virtuous and spenders are sinful. And the easiest way to see who the saints and sinners…
Given what I know about the Fed's reaction function, I believe pre-conditions favor Fed tightening irrespective of the slope of the yield curve.
Last week, Lael Brainard gave an important speech on financial stability. In effect, she said the Fed is likely to require increased capital buffers in the future. The key to if and when is in how large mitigating factors are in keeping…