The Fed chose to keep its policy unchanged at its November interest rate meeting, which seems to contradict the narrative of the strong US economy. Whether this includes the concerns of US financial groups about overseas geopolitics is self-evident. Tonight's non-agricultural data was also far below expectations, which seemed to be in line with the market's belief that there is a high probability of starting a rate cut cycle next year. The Fed's operation method of observing the sky is actually just a choice between plan A and plan B.
In light of history, I do not think that Powell's neutral statement at the meeting is dovish. In the 1970s, the United States was in a difficult situation of rapid recovery, rapid recession, and continued stagflation because of the fluctuating interest rates. The current Federal Reserve is well aware of the reasons why the federal funds rate was close to 14% at the end of 1979 and as high as 20% in 1980. I believe that historical lessons will not allow the same mistakes to happen again. Even if the Federal Reserve no longer insists on "higher for longer", it will inevitably launch a "longer" narrative.
Here are the reasons:
1. The Federal Reserve can no longer underestimate the resilience of inflation as it did in the Volcker era.
2. The tail risk of interest rate hikes and balance sheet reduction is not excessive tightening, but that the degree of tightening is not enough to consume and erode the scale of MMT's excessive money issuance.
3. The Federal Reserve’s bond losses are not actual gains or losses. If you are patient, everything will be fine. There is no need to be short-sighted.
