Tuesday June 1, 2021 - 19:49:39 GMT
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A Big Fib?
If you thought the word “fib”in the title of this article referred to some new revelation about Fibonacci retracements, then you are wrong. However, if you are interested in what might drive global markets going forward, then read on///
The focus of this article is whether central bankers, led by the Fed, mean what they say or are spinning a great fib, as opposed to a big lie, when they say rising inflation is expected to be transitory. So, let’s take a look at the difference between a big fib and a big lie in order to rule out the latter. .
A Big Fib
According to dictionary.com, a fib is a small or trivial lie; minor falsehood. Some refer to a fib as a white lie.
A Big Lie.
On the other hand, according to Wikipedia, A big lie is a propaganda technique used for political purposes, defined as "a gross distortion or misrepresentation of the facts, especially when used as a propaganda device by a politician or official body."
If central bankers were spinning A Big Lie, then we are all in trouble. I prefer to give central bankers the benefit of the doubt that they mean what they say and hope that they are right. However, one can be suspicious when they all seem to be drinking from the same coffee cup by spewing out the “inflation is expected transitory” party line. This is why I am laying out the possibility that this may turn out to be a big fib where an outcome based on hope might cover it up.
Do you believe?
The question is whether central bankers, led by the Fed, really believe it or is it a big fib to keep a lid on bond yields?
For now, the bond market seems to be buying into the narrative after an initial spike in yields has seen rates back off into a range. However, it just may be a mattof er a market buying time until the test comes when already rising inflation continues to move higher as anticipated.
Reality check
The reality is that the Fed is stuck between a rock and a hard place.
On one hand, It needs to keep a cap on interest rates given the impact that rising yields would have on mammoth US budget deficits as far as the eye can see.
On the other hand, it needs to maintain confidence that it will not lose control over inflation by falling too far behind the curve. Otherwise, it would face the choice of having to tighten policy even more to curb rising prices or face a sell-off in bonds and the dollar that would have repercussions in other markets. .
In the meantime, expect more of the same and only time will tell if this turns out to be a big fib or central banks pull an inside straight as inflation proves to be transitory..
Your guide
For those using bond yields as a guide, keep an eye on US 10 year 1.80% (currently 1.63%) as a move above it (i.e. weaker bond prices) would put the key 2,00% level on the radar and likely send a scare through global markets. For those trading in the forex market, let the Amazing Trader be your guide.
Jay Meisler
Co-founder, global-view.com
[email protected]
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