“Thinking about thinking about tapering”

Reformed Broker on a coming (someday) taper:

Of course they’re going to talk about tapering

So, they’re ready to start thinking about thinking about tapering. It’s good that they’re acknowledging the pressures in the real economy and their role in it.

Hmmm, let me think… what could appropriately describe the Fed’s role in the inflationary recovery and one day, its end? Hmmm… Oh, I know!

“There is nothing wrong with your television set [rational mind]. Do not attempt to adjust the picture [your point of view]. We are controlling transmission [the financial markets]. If we wish to make it louder [more expensive], we will bring up the [funny munny] volume. If we wish to make it softer [cheaper], we will tune it to a whisper [pretend to be hawkish]. We will control the horizontal [rates of interest]. We will control the vertical [price signals]. We can roll the image [roil the markets], make it flutter [you shudder]. We can change the focus to a soft blur [away from that man behind the curtain], or sharpen it to crystal clarity [command your rapt attention to our manipulative goals]. For the next hour [undetermined time period until the macro souffle wheezes, drops and flattens], sit quietly and we will control all that you see and hear. We repeat: There is nothing wrong with your television set [rational mind]. You are about to participate [have been participating] in a great adventure. You are about to experience [have been experiencing for nearly 2 decades now] the awe and mystery which reaches from the inner mind [dark corners of a long-since failed experiment that does not yet know it has failed] to… The Outer Limits.”

Hence, the recent pullback in inflation expectations comes as the Fed begins a fledgling jawboning process we are likely to endure over the next many months. It will be an incoming tide of cynical Fed eggheads giving speeches designed to manage our expectations. Throw in a side of Yellen jawboning corporate taxes the world over and it’s not going to be a smooth run.

But whatever it is, the Continuum shows the recent flag in the inflation trade, right from the zone we anticipated I might add. But it also shows room for upside before the Fed goes into expectations management mode of a different kind. It’s just one indicator, but it’s a generally reliable one.

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