The Fed Has Not Overshot

Donald Trump whines, throws tantrums and soils himself over the Fed’s persistent (and correct) course of tightening on the Fed Funds rate (FFR). But this chart states that the Fed is in no imminent danger of an overshoot. The implication – if we are going to go by the history of the last two major stock market tops – is that the current stock correction is not the ultimate top of the stock bull market.

Now, historical analogs and quants were made to be broken but what I want to do is present facts. The fact is that 2 year yields are at this moment in time still leading the FFR higher and while a market top may be looming that is not what is indicated by the normal relationship between the 2yr and FFR. If the market is topping out for real, it is doing it without an indicator that foretold its last two tops.

Now, with respect to the previous post about inflation, it is entirely possible that if the next crisis is inflationary its signals would be different from the last two episodes, which were deflationary liquidations.

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