Charts of the Week
Tracking The Fed’s Balance Sheet Reductions
March 21, 2018
Today the Fed increased the speed at which it will reduce its balance sheet to $30 billion per month. These charts track their progress so far.
Today the Fed increased the speed at which it will reduce its balance sheet to $30 billion per month. These charts track their progress so far.
So far Powell seems to be continuing the job started by Yellen. Statements remain shorter and easier to understand than those of the past 5 years.
Given the volatility in the markets over the past couple months, a look at stock market sentiment is in order.
As March draws to a close, it is worth noting April has historically been the best month to own stocks since 1980. It has also proven to be one of the worst months to own bonds.
Total assets in short volatility funds recovered almost immediately from early February losses.
A look at stock valuations
The House is very much up for grabs, but the Republicans are expected to hold the Senate.
Stock total returns since the Fed hiked on December 17, 2017
Commodity total returns since the Fed hiked on December 17, 2017
Stocks prices since 1629.
Hawkish rhetoric is warranted given improved economic conditions and heightened financial leverage. But, inflation and wages need to rebound into the summer to support three-plus hikes by the Federal Reserve over the next 12 months. Languishing inflation would exacerbate the tightening of financial conditions, likely quickly testing Powell's tolerance.
Rising real earnings suggest core inflation and wages will rise on a lag. The S&P 500 will likely continue to rise, but ultimately produce dampened returns and higher volatility based on similar past scenarios. U.S. TIPS standout as calm, stable performers.