The Fed hikes again

The Federal Reserve nudged up short-term interest rates for the fourth time this year, defying pressure from President Trump, but suggested it could slow the pace of increases next year in the face of new headwinds.

Fed officials voted unanimously Wednesday on the increase, which will bring the benchmark federal-funds rate to a range between 2.25% and 2.5%, the ninth such rise since December 2015. They also indicated they think they won’t need to raise rates as much next year as they had anticipated three months ago.
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... current Fed chairman Jay Powell went out of his way to soothe markets on Friday, ...

He vowed to shift gears "quickly" if need be. The Fed "wouldn't hesitate" to suspend quantitative tightening (QT) if circumstances deteriorate.

This was a far cry from his comment before Christmas that the Fed's pre-set plan to shrink the balance sheet by $50 billion a month was on "autopilot" -- even though half the world was by then in flames. In the US itself the Goldman Sachs Financial Conditions Index had jumped 100 basis points since early October.

The new line is clearly a concerted Fed message. A day earlier Robert Kaplan from the Dallas branch said he was watching "very, very carefully" lest QT causes liquidity to evaporate and leads to a crunch.

It is the reassurance that skittish investors have been waiting for after a $20 trillion slide in global equities and signs of seizure in the credit markets.
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Hans Redeker, currency chief at Morgan Stanley, said the great dollar rally is over. It has become clear over the Autumn that America itself cannot handle rising real yields since US corporate debt ratios are at a record high.

Japanese investors are starting to unwind some of their $2 trillion of US dollar assets as the cost of currency hedges renders the ‘carry trade' into US money markets unprofitable. "They are sitting on loss-making assets so they have to liquidate," he said.

Wild moves in the yen last week were a sign of the shifting flows. When this process gathers pace the dollar typically goes into a fast and accelerating downward slide. This in turn sets off a recovery in gold, oil, commodities, and battered markets in Asia, Latin America, and Africa.
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So What? It Doesn't Matter

None of this matters in the least. One additional rate hike will not tip the economy into recession. One rate hike less, or even a rate cut will not prevent a recession.
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What Does Matter

​Suddenly, There's No Appetite for Bond Deals as Spreads Widen. And the BIS Fears "Bulge of BBB Debt" and "Financial Cycle" Default Waves.

The BIS warns of $3.15 trillion in BBB corporate debt hovering just above junk that "if and when the economy weakened, it is bound to put substantial pressure on a market that is already quite illiquid and, in the process, to generate broader waves."

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Four Fed presidents, three of them voting members issued dovish statements today.
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Two Fed governors now propose targeting the long end of the yield curve if there is another recession.
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By the way, this talk is indicative of a Fed that is far more concerned about a recession than they want you to believe.

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