... current Fed chairman Jay Powell went out of his way to soothe markets on Friday, ...
He vowed to shift gears "quickly" if need be. The Fed "wouldn't hesitate" to suspend quantitative tightening (QT) if circumstances deteriorate.
This was a far cry from his comment before Christmas that the Fed's pre-set plan to shrink the balance sheet by $50 billion a month was on "autopilot" -- even though half the world was by then in flames. In the US itself the Goldman Sachs Financial Conditions Index had jumped 100 basis points since early October.
The new line is clearly a concerted Fed message. A day earlier Robert Kaplan from the Dallas branch said he was watching "very, very carefully" lest QT causes liquidity to evaporate and leads to a crunch.
It is the reassurance that skittish investors have been waiting for after a $20 trillion slide in global equities and signs of seizure in the credit markets.
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Hans Redeker, currency chief at Morgan Stanley, said the great dollar rally is over. It has become clear over the Autumn that America itself cannot handle rising real yields since US corporate debt ratios are at a record high.
Japanese investors are starting to unwind some of their $2 trillion of US dollar assets as the cost of currency hedges renders the ‘carry trade' into US money markets unprofitable. "They are sitting on loss-making assets so they have to liquidate," he said.
Wild moves in the yen last week were a sign of the shifting flows. When this process gathers pace the dollar typically goes into a fast and accelerating downward slide. This in turn sets off a recovery in gold, oil, commodities, and battered markets in Asia, Latin America, and Africa.
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