"Grouchy" SocGen Analyst: "Fed Will Be Buying Again Long Before They Finish Normalizing"

Over the weekend, One River's CIO Eric Peters said that last week's announcement by the Fed marked the "end of the QE era." At least one person, however, is not convinced: as the "increasingly grouchy" SocGen FX strategist Kit Juckes writes in his overnight note, slams calls that the Fed's announcement was a "hawkish hike", and says that "while we got more detail about the Fed's plans to run down its balance sheet, these amount to a pace so slow that they'll still have boatloads of bonds on board when the next recession strikes. My guess is they'll be buying again long before they finish normalising the balance sheet (whatever that really means)."


Looking at the Fed's disclosed projections, which anticipate the Fed to continue normalizing until 2020, or well past the point the next recession is expected, his skepticism is certainly warranted.



Excerpts from his note below:









I'm getting increasingly grouchy whenever anyone says that last week's FOMC outcome was a ‘hawkish hike'. Any day now, I'll start denying that it was actually a hike at all. Rates went up, of course, but since the groundwork for that move started months ago, it was really only confirmation of something that had effectively happened already.


 


And while we got more detail about the Fed's plans to run down its balance sheet, these amount to a pace so slow that they'll still have boatloads of bonds on board when the next recession strikes


 


My guess is they'll be buying again long before they finish normalising the balance sheet (whatever that really means). The ‘dot plot' was unchanged after accounting for personnel changes, and while it implies more/faster rate hikes than the market expects, Chair Yellen did nothing to persuade the market to take the dots seriously in her press conference.


 


The market reaction has the level of rates two years down the road almost exactly where it was before the Fed hiked, and risk assets around the world are rallying again as the ‘carry party' resumes.








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