In the last few days, the chorus of Fed Officials talking about “getting to neutral” has reminded me of the famous Yogi Berra saying: “if you don’t know where you are going you might end up somewhere else”. The current state of affairs is probably more apropos of “Alice’s Adventures in Wonderland” author, Lewis Carroll: “If you don’t know where you are going, any road will get you there”. The flip-flopping and apparently random decision making, under the guise of “data-dependence”, is going to inevitably lead us to high volatility and fat-tail moves, especially as the Fed is no longer buying massive amount of assets. That place, a world of financial instability, is where this new-found love of “neutral” is leading us. And in due course, because that neutral point is so far away, this new mantra will likely be met with a dovish pivot to squash the volatility and unhinge markets. Investors should be getting ready for this pivot to happen sooner rather than later, in my view.
The full note on this important topic can be downloaded at this link: LTA Thinking – Getting Ready For The Dovish Pivot From The Fed