Federal Reserve Lags Behind Inflation Curve – Bitcoin Magazine


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November FOMC Meeting

All eyes across global markets are on the November FOMC meeting. At this point in the global liquidity cycle, seemingly every asset class is part of the same implicit trade. The tough talk from the Fed, the central bank of the dollar indebted world, has held up so far in 2022, as they embark upon the fastest tightening cycle in modern history.

Consensus for the size of the rate hike is 75bps, which would raise the policy rate to 4.00%.

Much of this hiking has already priced itself into the front end of the U.S. Treasury curve, which has led to all sorts of inversions across various maturities.

In terms of the yield curve, across any duration that matters, an inversion has happened — a phenomenon that typically occurs before an economic slowdown, as short term yields rising disincentivizes the investment of capital over long durations due to “attractive” short end yields. Lend your money to the U.S. government for 30 years and lock in 4.13% or for three months at 4.13% and reevaluate then? Duration risk is real and the pace of this tightening cycle on the backs of record inflationary conditions across the globe has left investors uneasy on the long-term prospect of government paper. No kidding. 

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