Morning Comment: The Recent Drop in Yields Actually Makes it Easier for the Fed to

The focus this week for many investors will be the Fed’s meeting on Wednesday…and the announcement and press conference that will follow. Tomorrow’s PPI number should get a lot of attention as well, but the big question the markets are facing right now is how fast the Fed will begin their process to taper back on the massive liquidity/stimulus that they’ve been providing the system over the past 15 months.

We hope you noticed that we did not say that the big question facing the markets today is whether the Fed will taper back on their QE program. That decision has already been made. The massive program that was put into place back in March of 2020 was initiated because the economy was almost completely shutting down and (more importantly) the fixed income market was freezing up. NOW, we have a situation where the economy is MUCH, MUCH better than it was 15 months ago and the fixed income markets are working just fine. So, the Fed WILL start to taper back on their QE program this year.

Too many people are focused on the strength of the economy and the prospects for inflation. EVEN if the bounce back in the economy was not as strong as it has become…and EVEN if the prospects for inflation remained tame…the Fed would STILL be beginning the process to taper back on their liquidity/stimulus injections. WE NO LONGER HAVE A STATE OF EMERGENCY IN THE ECONOMY AND THE BOND MAREKT, SO THE FED NO LONGER NEEDS TO PROVIDE AN EMERGENCY LEVEL OF STIMULUS!!! In fact, if they keep providing that kind of stimulus, they’ll do more harm that good. (They insure that inflation becomes a major problem…and they’ll inflate the kind of bubble that will be all but impossible to recover from once it bursts.)

We don’t want to sound condescending, but the situation is as simple as that.

Therefore, as crazy as this might sound to some people, the fact that interest rates have come-down in recent weeks, actually makes it MORE LIKELY that the Fed will taper back on their QE purchases sooner rather than later! In other words, we completely disagree with those who say that the employment report from two weeks ago makes it more likely that the Fed will wait to “taper.”

In fact, just the opposite is true. Just because the economy might not as strong as people thought it might be going froward through the summer, it is still (easily) strong enough to cause the Fed to taper back from their emergency level accommodation!!!! Now that interest rates have come down, it has given the Fed more room to maneuver. They can now proceed with their (already decided upon) plans to taper back on their massive bond purchases this year.

If we haven’t seen the low in long-term interest rates for this multi-month decline, we’ll see it VERY soon. Even if it takes another week or two, it will come at levels that are very close to current ones in the Treasury market.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jun 14, 2021 — 8:06 AM
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