The mood in the financial markets has changed

The mood in the financial markets has changed dramatically. It started with the U.S. Treasury Department adjusting its issuance schedule in early November, and there have been comments since the FOMC's rise in market interest rates could make further increases unnecessary for the Fed. And it's boosted once again by the U.S. consumer price index, which slowed sharply in October unlike last September, and the U.S. consumer price index, which was 0.1 percent lower than expected in the last market. When inflation expectations slowed significantly, international oil prices, one of the leading inflation hedge assets, fell sharply. The financial markets reacted hotly as the market interest rates slumped along with the fall in oil prices. First of all, the Nasdaq 100 has already returned to the point of reference, and the S&P 500 is approaching the 4,500 mark that it said was a major resistance line. I think the resilience of the stock market is really stronger than ever before.

And market participants actually think that the Fed's rate hike is over. The chances of further increases in the Fed's futures market are zero percent. And we'll have to look beyond that, rather than ending that. Yeah. The end of that isn't a freeze on the base rate. It stimulates a big boon in the near future: a cut in the base rate. And we know that the Fed raises it slowly, but it lowers it hotly when it does. Some of the actual overseas IBs even see a 300-bp cut. They're expecting a cut from March next year. Maybe the financial markets around the world, including the New York Stock Exchange, are historically bull markets, and maybe a really dramatic picture of a 300-bp cut in the base rate. Maybe the IB made this view, reflecting the concerns of a significant recession that could engulf inflation.

In this situation, the Fed is also quite embarrassed. Looking at the strong financial market reaction right after the FOMC, Governor Barkin, a centrist within the Fed, says it is not appropriate to operate the Fed's base rate while looking at market interest rates. Market interest rates are highly volatile… If a market rate hike stops raising the base rate, should we change the statement that if the market rate suddenly deteriorates, the base rate will increase? And if such market interest rates reflect the Fed's base rate movement to a considerable extent, it's really an inappropriate reference point.

And that's pretty reasonable. It actually happened. The 10-year Treasury yield was over 5.0%, and then it suddenly sank to 4.4%. And the liquidity that was hidden in the expectation of a rate cut is spewing out, strongly stimulating the asset market. And this actually kind of thing at the FOMC on November 3rd, when the financial environment is tight, so we don't have to raise interest rates anymore. So shouldn't somebody have to step up to get through this mess? Yeah, well, the guys in the Fed are stepping up. And the point is this. And the Fed pigeons are stepping up. And the hawks are going to beat the hawks because they don't have to worry about them. But wouldn't the pigeons be a little bit bothered? And just for your information, it was Rory Logan, one of the Fed hawks, who came out to soothe the market when everyone was nervous in early October, when interest rates on U.S. Treasuries were soaring. This time, on the other hand, San Francisco Governor Mary Daly, one of the leading pigeons, is stepping up to talk.

"However, Daly has left open the possibility of an additional rate hike. We are wary of the possibility that we should do a "stop-start" without a sufficient amount of information regarding whether we are in the process of disinflation heading for a 2% inflation rate," he said. After the Fed announced the end of the rate hike, it should be wary of a situation in which inflation has not fallen as much as expected, forcing us to raise rates again soon. "If we take a "stop-and-start" approach, it will disrupt people's plans and ultimately undermine confidence," he said.

Governor Daly also expressed concern over the recent fall in interest rates on U.S. government bonds. On the previous day, the 10-year U.S. government bond rate fell to an annual rate of 4.4%, the lowest level in two months. Earlier, when the interest rate exceeded 5% a year, Fed officials said, "It replaces the effect of austerity." (Korean economy, November 16, 23.)


First, the whole point of the first paragraph is Stop & Start. You have to go and stop. You warn a lot about austerity, and then you suddenly stop. If you think it's over now, you tighten again. If you repeat that, you're going to lose a lot of confidence in the Fed's commitment to austerity. And stop & start is called stop & go. It's the most representative shovel that the Fed did in the '70s. Governor Daly, a pigeon, mentioned it directly, expressing a sense of alertness. And that sense of alertness is more concrete in the second paragraph. He expressed concern about the recent decline in government bond rates. Now that government bond rates, which used to replace austerity, have fallen sharply. So is it hard to replace austerity? Yes. The actual Fed pigeon touched on what I've been saying in my essay.

It's actually a little bit ambiguous to call this a pigeon... a little bit of a pigeon... let's listen to the comments from Susan Collins, the governor of the Federal Reserve Bank of Boston.

"Susan Collins, president of the Federal Reserve Bank of Boston, warned in a CNBC interview on the 17th (local time) that an additional rate hike card is still alive. I don't think we've put additional austerity off the table (of the Fed's discussion)," he said. "It's too early to declare that we've won the inflation fight." The remarks are interpreted as an attempt to block the possibility of inflation soaring again at a time when the tightening cycle is over in the market as even hot consumption has slowed down due to slowing inflation.

However, he said, "It is true that we fully understand (the market's) sentiment to enjoy good news, and that there has been some good news in some figures. I am focusing on comprehensively examining the information we are getting and evaluating what needs to be done in real time." (Edaily, 23.11.18)

First, the first paragraph is the governor's comment that the possibility of a rate hike remains open. They want to block the possibility that the clumsy stop & go will again intensify inflation. And the second paragraph is important. It says that we understand the sentiment of the market that wants to enjoy the good news. And it says that we're evaluating these things in real time. Yeah, the Fed is monitoring the market response as well. And that's one of the other pigeons in the Fed, Governor Ostan Goolsbee's comment, is a little conditional. Let's take a look.

Chicago Fed President Austin Goolsbee, who made a separate public statement, voiced a similar sentiment. "We still have a long way to go, but we are continuing to make progress," Goolsbee said regarding the indicators released on the same day.

"Commodity inflation is already falling, and non-housing service inflation is generally slow to adjust, so the key to further progress over the next few quarters is how housing inflation will happen," said Goolsbee, who is considered a relatively dovish figure within the Fed. (Newspim, 23.11.15)

There's a long way to go in textbooks, and the market is throwing the most dismissive comments in the first paragraph. Rather, the second paragraph… Now they say that housing inflation is important. A lot of experts have said this since the beginning of this year. The prices of goods and services have stabilized to some extent. Now, the rent has come down. But the CEO of the consumer price is a lagging reflection. This will be slowly reflected. The logic is that it's only a matter of time before prices stabilize at 2 percent. By the way, it's similar to what you're talking about. When you're taking the CSAT, you're going to see that other areas have come up to a certain extent. So you just have to get a weak math score on this CSAT. The problem is that other areas can also fall. Math scores seem to get better. But they can get worse at any time. I read a recent article about the housing market.

CNN Business reported on the 16th (local time) that the number of applications for home purchases rose the most in five weeks as U.S. mortgage interest rates fell for three consecutive weeks. Freddie Mac, a U.S. national mortgage lender, announced that 30-year fixed-rate mortgages averaged 7.44 percent for a week as of the end of the 16th, down slightly from 7.5 percent the previous week. According to the U.S. Mortgage Bank Association (MBA), applications for home purchases and refinancing increased 2.8 percent last week, the largest increase in five weeks.

"The fall in mortgage rates will attract potential homebuyers further into the market as inflation slows and the economy continues to strengthen," said Freddie Mac chief economist Sam Carter. (YONINFORMAX, 23.11.17)

So once the mortgage rate went down from 7.5% to 7.44%, the number of applications for home purchases went up dramatically. Yes, it went down for three weeks straight. And then it went down to 7.9% three weeks ago. And that's where it went down by about 0.5%. And the thing that's asymmetrical is, when you go up by 0.5%, you know, the market is properly cheering when you go down by 0.5%, and the main reason is that there's a lot of excitement about interest rates going down. It's 7.4% right now, but there's nothing left to go down. It's probably stimulated investors' instinct that if interest rates go down endlessly, the housing market will start to fire again. So let me ask you a question. What happens in the housing market if interest rates go down by 1% or 2%, as the market expects