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July 11, 2017 By Peter Boockvar

QT before FF hike becoming more apparent


The Fed

If comments from Lael Brainard, a Fed Governor, a voting member and thus influential person on the FOMC are any indication, we’ll get the beginning of QT first (very likely in September) before the next rate hike which the recent inflation figures seem to be giving some of them cold feet. On the former she said “If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.” On the latter, “I will want to monitor inflation developments carefully, and to move cautiously on further increases in the federal funds rate, so as to help guide inflation back up around our symmetric target.” This comes just an hour after voting member Harker said “Let’s start the process of ceasing reinvestment. Let’s see how the market reacts to that, and then consider the third rate increase this year, whether that occurs or not.”

Bottom line, voting members of the Fed continue to believe that running off the balance sheet is somewhat harmless and no big deal. We hear that all the time and I’ll just reiterate my belief in taking the other side of that trade. No surprise at all to my readers. Whether its QT or a rate hike, it still is another form of tightening and the Fed is thus ramping up its pace of policy change in the 9th year of the expansion and in the context of a bull market that is making a run at the longest ever. We must also acknowledge that QT will be beginning just as the ECB is announcing its next taper.

For what’s to come, I’m glad Jamie Dimon finally agrees with what I’ve been saying forever.

The 2 yr note yield is at the low of the day in response to both comments, sitting at 1.37-1.38%. It was at or above 1.40% all of last week.

Screen Shot 2017-07-11 at 11.05.51 AM

Filed Under: Latest Data

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About Peter

Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.

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Disclaimer - Peter Boockvar is an independent economist and market strategist. The Boock Report is independently produced by Peter Boockvar. Peter Boockvar is also the Chief Investment Officer of Bleakley Financial Group, LLC a Registered Investment Adviser. The Boock Report and Bleakley Financial Group, LLC are separate entities. Content contained in The Boock Report newsletters should not be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. The views expressed in this commentary should not be taken as advice to buy, sell or hold any security. To the extent any of the content published as part of this commentary may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. No chart, graph, or other figure provided should be used to determine which securities to buy or sell. Consult your advisor about what is best for you.

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