Fed members, watchers and pundits have all embraced the spirit of the season and focused on glad tidings of comfort and joy. A $5B reduction in LSAP activity is not a taper, its a whimper. The sophomoronic concept of ease being a drug that an economy must slowly be weened of has permeated the Fed in an odd feedback loop. As Woody Allen said, "I used to be a heroin addict now I'm a methadone addict." Here's the only take away : The Fed doesn't trust markets enough to let go.
Posts are already loaded with goofy concepts of harsher forward guidance, IOER cuts and free toasters to "offset" the impact of Whimpering. Really ? Is this how far we've sunk? To put it in perspective, Oprah and Ellen will give more stuff away over the next 20 days than 5B in open market operations could destroy. We stand by our original prescription - Cut 40 to 50% NOW.
Spreads between color coded packs of Eurodollars hit new forever wides last week. Forward guide that. Think they have great roll downs, step right up. The idea the Fed exists to protect us from our own thoughts about the future is silly. Get it wrong? You lose, that's the real world. I (we) don't need Aunt Janet to hold my hand and tell me everything will be ok. The truth is she doesn't know anyway.
A central bank only has 3 settings. Tight, easy and neutral. Their ability to fine tune is no more accurate than Goldilocks' trial and error. Here's my Holiday Wish - To find out what the market for Treasury Bonds and MBS looks like without a Trillion Dollar buyer in the way.