Hang On! Now Comes The Rate Shock Of 2022

Why this major policy pivot when for the past decade it has been the Fed’s sole mandate to push risk assets higher? According to the BofA CIO, policy makers and politicians are now worried inflation will damage growth & approval ratings; so a policy pivot from pro-growth to anti-inflation; so&

  1. Fed will taper despite weak payrolls
  2. US fiscal stimulus watered down
  3. US monetary & fiscal cliffs ahead as $8.4tn emergency stimulus by Fed & Treasury ends (Chart 7)
  4. Global tapering underway (central bank liquidity add was $8.5tn in 20, $2.1tn in 21, just $0.1 in 22);
  5. China playing long-game, no longer in policy-panic camp (see stable China yuan).