The message is clear to anyone filling their tank, or grocery shopping. Transitory is out, persistent inflation is in. The Fed is panicking, and investors who bet on the central bank propping up the bond market are trapped. The big elephant herd is running to get out of the keyhole. The year is already a debacle for the bond market. The stampede we called for has begun. The grand Modern Monetary Theory experiment is dead (for now), and inflation is here to put the gods of money printing back in their place. Central banks and commercial banks and funds who front run them gorged on these hot dogs and now they are very very sick. The “misery index” is set to rise (the sum of inflation and unemployment) as we discussed. Having lived through 1994, when the non-maestro Alan Greenspan delivered an intermeeting tightening and shocked the bond market, we also discussed why that year is a good model for a panicked Fed. Recently a Fed governor used the same year as a model of what might be coming.
The full note on this important topic can be downloaded at this link: LTA Thinking – The Fed Is Ready To Break Things And Two Year Treasuries Are The Place To Be