The Fed Will Have Admitted Defeat When It Slows QT This Summer
What will happen when the Fed slows the pace of its muted QT program in the June timeframe? Yields will move a bit lower, (although with the Treasury deficit the U.S. is running this year on top of the $35 Trillion in debt outstanding, I would want significantly more than a 4.6% yield on the 10-year), and prices will continue to move higher from already elevated levels.
In short, the U.S. will not see a 2% CPI this year or in 2025 as the Fed looks to inflate the debt away. The value of the Dollar will continue to erode as another $100 billion goes out the door this month for Ukraine, Israel, and Taiwan - there is no foreign policy like debt-funded foreign policy. Congress - both the Democrats and Republicans - are destroying the value of the Dollar.
Fixed Income investors need to spend more time understanding fiscal policy and the utter lack of fiscal discipline at the Federal level in addition to having an opinion on the Fed and corporate credits. If you hadn’t noticed, fiscal policy drives monetary policy. The Fed is Treasury’s lapdog, it only exists to ensure fiscal liquidity.