Whether the Fed is going to cut the federal funds rate to stimulate the economy is a question. Inflation is being stubborn and not coming down to the Fed's Holy Grail of 2%, which Jay Powell is committed to achieving.
Last spring, when SVB and then First Republic failed, the Fed waited until the very last minute to inject emergency liquidity into the system, even though the Fed and the banks saw the crisis coming a year off.
I doubt very much Jay Powell is going to behave any differently this time around. Keep in mind that the Fed's strategy has always been such that it invariably leads to a liquidity crisis.
Which means that Powell will most likely wait until the banks start to fail before providing any sort of liquidity relief or aggressively restarting QE.
Powell calls that being "data dependent". In reality it's just being passive and reactive.
Thank you for taking the time to do this response. Maybe the banks are a little better positioned now and liquidity relief either won’t be necessary or at least it would be only a minor adjustment. (Maybe that’s just wishful thinking- especially if the management incompetency we saw at SVB is widespread.). I, however, have the same question that many of your readers seem to have: how much will the current administration be able to influence the Fed (to lower interest rates and/or reinstate QE) in an election year irrespective of inflation?
I haven't checked the bank balance sheets lately, but a few months back they were somewhat less exposed, but there is still a vulnerability if deposit outflows continue.
As for the ability of the current regime to influence the Fed, that's a question. In theory Jay Powell and the Fed is independent and free from government or Wall Street influence. In reality the Fed caters to Wall Street in particular-- or at least has in the past.
Washington DC might not be able to influence the Fed, but Wall Street has the same desire for cheap money. Will the Fed be swayed by either Washington or Wall Street? Quite possibly.
You know, in keeping with my enormous respect for you, I’ve been addressing you formally. But, after all these months of conversing, it’s feeling a bit stilted. May I call you Peter?
I love how you can always see clearly the entire picture - very impressive!
In order for Biden to have a chance of winning re-election, he must have the economy at least ‘looking’ good by then. If oil prices significantly rise, it will not! Yet, most of the volatility of oil prices are beyond his administration’s control, dependent upon the conflagrations of the Mideast. Can you think of anything Biden’s minions might try to keep fuel prices down until then? They’ve already drained down the Strategic Oil Reserve; is there some kind of legal government manipulation of oil prices you know of that they would try? (Who knows what ‘programs’ those weasels can fabricate.)
Perversely, a moderate and somewhat gradual rise in oil prices would probably be good medicine for the global economy. Despite the political pressures of "green" lobbies around the world, the world does not yet have a reliable energy alternative to fossil fuels.
The world needs oil, and the world therefore needs oil companies. Oil companies need profits, and they are more easily obtained at higher prices than at lower prices.
However, right now global demand is weak relative to global supply, and that is a downward pressure on oil prices, frustrating Saudi and Russian efforts to push oil prices up with their production cuts. A major reason global demand is weak relative to global supply is the US is producing record amounts of oil--and that's production, not sales from the SPR.
The one foreseeable geopolitical event which could push oil prices significantly higher is a Middle Eastern war which threatened oil shipments from the Persian Gulf. Right now, the Houthis have not succeeded in making a credible threat in that regard.
If the US and China go to war over Taiwan that would probably spike oil prices in the short term, but I don't see that influence lasting long as the US would be almost certain to blockade the Strait of Malacca and cut off China's oil imports--which would bring a quick end to the war and an humiliating defeat for China (75% of China's energy needs move through the Malacca Strait, and if that flow gets cut off China de-industrializes within a year).
However, given the recent military scandals that have emerged in China--when the missile force "protecting" China from US nuclear threat has its rockets' fuel tanks filled with water rather than rocket fuel, one has to wonder just how real is China's military combat readiness--it is very much an open question whether China even has the military capacity to invade Taiwan.
Even before the scandals this was a relevant question, as China has not been in a significant conflict since a border war with Vietnam in 1980, where the PLA got spanked by Vietnamese reservists. Chinese troops have had ZERO combat experience since then, and that means from top to bottom the PLA officer corps has ZERO combat experience. In addition to that, the last time China attempted a seaborne assault anywhere was when the Qing Dynasty annexed Taiwan in 1683-1684.
These realities all operate against China doing much more than rattle its saber in the Western Pacific and dream about somehow breaking out beyond the First Island Chain--something it cannot do without a blue water navy and the PLAN is nowhere near that level of capability.
All of which limits the foreseeable gepolitical events which could significantly spike the price of oil. It is possible for the Israeli-Hamas war to metastasize into a larger Middle Eastern conflict which threatens Persian Gulf oil shipments, and it is possible for the US and Iran to be drawn into a direct shooting war with each other as a result of reprisals against the Houthis. That latter outcome would be the "WW3" scenario, but while these are possible outcomes, it is still very problematic whether they are likely outcomes. Right now, global oil markets are not pricing in either scenario.
Which is a long-winded and roundabout way to answer your question about Biden's minions "trying" to keep the price of oil down by saying there is little they or anyone can do right now to keep the price of oil up. Of all the things that might disrupt the global or the US economy, a sudden oil spike is not a probable event at the present time.
There are reports that the Fed’s QT is over and QE will resume. Is this just Wall Street being delusional and trying to push the fed?
https://www.zerohedge.com/markets/its-all-over-now-powells-wsj-mouthpiece-jpmorgan-confirm-qt-almost-over
ZeroHedge has a tendency to indulge in hyperbole whenever it wants to wax rhetorical about "financial plumbing".
That being said, the Fed has stopped shrinking the M2 money supply, and even the M1 has plateaued in November.
https://fred.stlouisfed.org/graph/?g=1eayg
However, the Fed is not stopping the roll-off of their balance sheet.
https://fred.stlouisfed.org/graph/?g=1bUao
Whether the Fed is going to cut the federal funds rate to stimulate the economy is a question. Inflation is being stubborn and not coming down to the Fed's Holy Grail of 2%, which Jay Powell is committed to achieving.
Last spring, when SVB and then First Republic failed, the Fed waited until the very last minute to inject emergency liquidity into the system, even though the Fed and the banks saw the crisis coming a year off.
https://newsletter.allfactsmatter.us/p/reality-check-svbs-collapse-was-a
I doubt very much Jay Powell is going to behave any differently this time around. Keep in mind that the Fed's strategy has always been such that it invariably leads to a liquidity crisis.
https://newsletter.allfactsmatter.us/p/powells-paradox-curing-inflation
Which means that Powell will most likely wait until the banks start to fail before providing any sort of liquidity relief or aggressively restarting QE.
Powell calls that being "data dependent". In reality it's just being passive and reactive.
Thank you for taking the time to do this response. Maybe the banks are a little better positioned now and liquidity relief either won’t be necessary or at least it would be only a minor adjustment. (Maybe that’s just wishful thinking- especially if the management incompetency we saw at SVB is widespread.). I, however, have the same question that many of your readers seem to have: how much will the current administration be able to influence the Fed (to lower interest rates and/or reinstate QE) in an election year irrespective of inflation?
I haven't checked the bank balance sheets lately, but a few months back they were somewhat less exposed, but there is still a vulnerability if deposit outflows continue.
As for the ability of the current regime to influence the Fed, that's a question. In theory Jay Powell and the Fed is independent and free from government or Wall Street influence. In reality the Fed caters to Wall Street in particular-- or at least has in the past.
Washington DC might not be able to influence the Fed, but Wall Street has the same desire for cheap money. Will the Fed be swayed by either Washington or Wall Street? Quite possibly.
Reassuring. Thanks, Mr. Kust!
You know, in keeping with my enormous respect for you, I’ve been addressing you formally. But, after all these months of conversing, it’s feeling a bit stilted. May I call you Peter?
Of course!
Hi, Peter, I’m Gail.
A pleasure, Gail. And thanks for all the praise and support. It's always nice to know people value my work!
I love how you can always see clearly the entire picture - very impressive!
In order for Biden to have a chance of winning re-election, he must have the economy at least ‘looking’ good by then. If oil prices significantly rise, it will not! Yet, most of the volatility of oil prices are beyond his administration’s control, dependent upon the conflagrations of the Mideast. Can you think of anything Biden’s minions might try to keep fuel prices down until then? They’ve already drained down the Strategic Oil Reserve; is there some kind of legal government manipulation of oil prices you know of that they would try? (Who knows what ‘programs’ those weasels can fabricate.)
Perversely, a moderate and somewhat gradual rise in oil prices would probably be good medicine for the global economy. Despite the political pressures of "green" lobbies around the world, the world does not yet have a reliable energy alternative to fossil fuels.
The world needs oil, and the world therefore needs oil companies. Oil companies need profits, and they are more easily obtained at higher prices than at lower prices.
However, right now global demand is weak relative to global supply, and that is a downward pressure on oil prices, frustrating Saudi and Russian efforts to push oil prices up with their production cuts. A major reason global demand is weak relative to global supply is the US is producing record amounts of oil--and that's production, not sales from the SPR.
The one foreseeable geopolitical event which could push oil prices significantly higher is a Middle Eastern war which threatened oil shipments from the Persian Gulf. Right now, the Houthis have not succeeded in making a credible threat in that regard.
https://newsletter.allfactsmatter.us/p/even-the-houthis-cant-raise-the-price
If the US and China go to war over Taiwan that would probably spike oil prices in the short term, but I don't see that influence lasting long as the US would be almost certain to blockade the Strait of Malacca and cut off China's oil imports--which would bring a quick end to the war and an humiliating defeat for China (75% of China's energy needs move through the Malacca Strait, and if that flow gets cut off China de-industrializes within a year).
However, given the recent military scandals that have emerged in China--when the missile force "protecting" China from US nuclear threat has its rockets' fuel tanks filled with water rather than rocket fuel, one has to wonder just how real is China's military combat readiness--it is very much an open question whether China even has the military capacity to invade Taiwan.
Even before the scandals this was a relevant question, as China has not been in a significant conflict since a border war with Vietnam in 1980, where the PLA got spanked by Vietnamese reservists. Chinese troops have had ZERO combat experience since then, and that means from top to bottom the PLA officer corps has ZERO combat experience. In addition to that, the last time China attempted a seaborne assault anywhere was when the Qing Dynasty annexed Taiwan in 1683-1684.
These realities all operate against China doing much more than rattle its saber in the Western Pacific and dream about somehow breaking out beyond the First Island Chain--something it cannot do without a blue water navy and the PLAN is nowhere near that level of capability.
All of which limits the foreseeable gepolitical events which could significantly spike the price of oil. It is possible for the Israeli-Hamas war to metastasize into a larger Middle Eastern conflict which threatens Persian Gulf oil shipments, and it is possible for the US and Iran to be drawn into a direct shooting war with each other as a result of reprisals against the Houthis. That latter outcome would be the "WW3" scenario, but while these are possible outcomes, it is still very problematic whether they are likely outcomes. Right now, global oil markets are not pricing in either scenario.
https://www.barchart.com/shared-chart/CBH24?chart_url=i_1705352747_248342368&page_url=%2Ffutures%2Fquotes%2FCBH24%2Finteractive-chart%3Fid%3D8051190
Which is a long-winded and roundabout way to answer your question about Biden's minions "trying" to keep the price of oil down by saying there is little they or anyone can do right now to keep the price of oil up. Of all the things that might disrupt the global or the US economy, a sudden oil spike is not a probable event at the present time.