https://www.delftpartners.com/news/views/a-fictitious-memo-to-jay-powell-from-a-staffer-at-the-fed.html

 

In the last 6 months the yield on the 10 year note has risen from 70 bps to approximately 150 bps. This move should give us policymakers pause to reflect. For 25 years now, as you all know, we at the Fed, have essentially run an asymmetrical approach to interest rates and in the guidance of policy to the markets. Always lower if we can and very slow to raise and then never back to where we were. We have thus succeeded in bringing down the cost of government and corporate borrowing to very low nominal levels and probably negative in real terms for several years. We can count this as a success. We now however find ourselves at the expected cross roads. We may have gone too far and there are risks in continuing this monetary policy. To quote Keynes, “Once doubt begins, it spreads rapidly”. We need to decide where we go from here; now.

Our policy over 25 years has produced and reinforced moral hazard. Monetary issuance at every sign of asset price decline, GDP shortfall, or one-off supply side benefit, has created an unprecedently large balance sheet for the Federal Reserve Bank system, potential instability in the US $, and therefore possibly an enormous burden on future US tax payers.

The consequences of this enormous balance sheet and monetary issuance can be seen in the elevated price of stocks, bonds, real estate, and more worryingly in the steadily lower quality of capital allocation and business formation. The only way current asset prices can be sustained is through the continued expansion of our balance sheet and this would jeopardise confidence in our fiat money system.

Unlike one of your predecessors, we think we should act when we can clearly see asset price bubbles and that time is now. Low levels of CPI increases are used by Fed spokesmen as justification for continued loose monetary policy, but every large asset price crash producing economic and social turmoil, also occurred against this backdrop of ‘tame’ consumer price inflation. We are frankly ignoring plain warning signs elsewhere.

Other posts

C8 Weekly Bulletin:  Artificial Intelligence and Direct Indexing Webcast

BY JON WEBB
C8 were delighted to contribute to the inaugural webcast of one of our index providers, Axyon.AI, to discuss the topic 'Investing with Artificial Intelligence and Direct Indexing'.  Our CEO, Mattias Eriksson, and our Head of Southern Europe, Riccardo Baroni joined Axyon CEO Danielle Grassi.  The discussion gives a great overview of the benefits and growth of Direct Indexing, C8's cutting-edge platform 'C8 Studio', and Axyon's innovative approach to creating indices using AI.   Please click on the image below to watch the webcast. Read more →

MI2 Partners Thoughts From The Divide: Grief

BY JON WEBB
MI2 Partners Apr 04, 2025 “The market could have certainty that this is… Read more →

C8 Weekly Bulletin:  Trend-following in Volatile Times – the C8 Way

BY JON WEBB
The first quarter of 2023 has been notable for its skittish financial markets. First, there was optimism that this year would prove calmer than 2022, followed by renewed concern about inflation and the impact of bond holdings in the US banking system. This culminated in the forced takeover of Credit Suisse at the weekend.  Traditional trend-following strategies performed strongly in 2022, but these rapid shifts in sentiment have proved more difficult to navigate. The SocGen CTA index is down 6% year-to-date, and down nearly 10% in the past week.    Here is the good news!  The C8 Global Active Futures index avoided this sell-off and remains up on the year.  Why the difference?  C8's proprietary allocation process selects from a wide range of trend and counter-trend strategies, and is responsive to volatility levels, so adapts more readily to changing market environments. Read more →
Back to all posts →