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Powell’s Done and It’s Too Late

Fed Chairman, Powell, spoke today. During his talk, the market went up, then down, then back up before finishing down big. For those of you who are retro video game fans, this was the market version of the Konami Code.

During his speech, Powell indicated the Fed was done hiking rates for now. As always, by saying the Fed would remain data-dependent, he left room to raise or cut rates in the future. However, it’s highly unlikely the Fed will raise the fed funds rate later this year or early next year.

The indication that we’ve probably hit the “terminal rate” (the highest point for the fed funds rate during a cycle) first sent the market up. Then, people started to realize the reason Powell isn’t hiking again right now is because the bond market is doing it for him. Just a few weeks ago, as I was proofing Counter-Intuitive Inflation, the 10-year Treasury was trading at a 4.3% yield. By the time we were ready to finalize it, the 10-year was above 4.5%. As of today, it’s at 4.99%. These are huge moves while the Fed is signaling it’s not about to hike again.

So, if the Fed is “pausing” and the long-end of the yield curve is climbing, it’s not because of the Fed. The reason for this is the bond market is starting to realize something we’ve been talking about at DKI for years:  Congress is overspending. That excess spending won’t be paid for in taxes; but rather, with debt. That debt, which leads to currency creation, debases the value of the dollars already in the system causing future inflation.

The tools available to Powell are raising the fed funds rate and unwinding some of the massive irresponsible quantitative easing they’ve done in recent years. However, at this point, the bond market has taken control. I’m not convinced that a rate cut by the Fed would even lower 10/20/30 year Treasury yields. It’s entirely possible the bond market would interpret a lower fed funds rate as something that would cause future inflation and respond by selling bonds which would increase the yield further.

For more on this topic, please check out The Bond Vigilantes Have Arrived and the recently released Counter-Intuitive Inflation.

I’ll be writing more on this in the near future. In the meantime, with any questions.

One quick housekeeping note:  We had an amazing subscribers’ webinar today with Jesse Myers of Onramp Bitcoin. After the webinar, Jesse and I spoke for a while, and both of us were incredibly impressed with the quality of questions we received from those of you in the chat. Your questions moved the conversation from technical finance to philosophy and ethics. Well done!

And a reminder that we have a webinar on Monday with Heather Heldman and Dr. John Lenczowski on Israel, US National Security, and other relevant players including Hamas, Iran, Ukraine/Russia, and Taiwan/China. DKI has kept all coverage of the situation in Israel publicly available and this is no exception. The webinar is open to all of you. You are welcome to forward the invitation to friends and colleagues who have interest.

Thanks to all of you. See on on Monday.


Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

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