Riddle Me This, Batman

 

When the Fed says it is aiming for a "soft landing", it means this: they have a dual mandate.  Price stability with very low inflation is the first goal.  The second goal is low unemployment.  All of the current crying and whining has been produced by two things.  The first is the failure of the Fed to keep inflation at a low level.  The second is the Fed making some movement toward lowering inflation; the two very small overnight interest rate increases that they have implemented thus far are driving up costs on credit and thereby pissing off both producers and consumers of high end products that require the grease of cheap credit to facilitate the sales.

Now, the real shit show does not begin in earnest until next month.  The Fed has for the past two (plus) years been the dumping ground for treasuries, mortgage backed securities and bonds of all stripes.  They have bought some real crap over the past two years.  In June, all of that bullshit ends.

From Reuter's Explainer:  The Federal Reserve on Wednesday said it will start culling assets from its $9 trillion balance sheet in June and will do so at nearly twice the pace it did in its previous "quantitative tightening" exercise as it confronts inflation running at a four-decade high.

The central bank's stash of assets has roughly doubled in size during the coronavirus pandemic as it used purchases of Treasuries and mortgage-backed securities to smooth market functioning and augment the effects of its interest rates cuts. Now it wants to reverse much of that, and in relatively short order, alongside rate hikes meant to cool inflation.

Starting in June, we are going to find out just how many employers and companies exist only because there has been an abundance of artificially cheap and free flowing credit compliments of the Federal Reserve.  If a company has no exit strategy and the ability to pivot, it will cease to exist and its employees will no longer have an employer.  It will get very interesting in the months after QT (quantitative tightening) begins.  

I read recently that the home builder's association is petitioning Joe Biden to help with lowering costs and regulations so that "they can provide housing for great Americans".  Let me clarify their true motives: please remove the tariffs on Canadian lumber and lower permitting costs so that our profit margin can remain super fat.  We all know we will need to lower prices in the face of higher mortgage interest rates - otherwise we will have no buyers and our $75,000 new Ford F-250's will be repossessed by the banks that are holding the liens on the titles and we won't be able to satisfy the never ending superficial wants and desires of our wives who sport a Karen hairstyle and the wonderful crotch muffins that we created with said wives.

The shit does not truly hit the fan until around September.  We're going to find out how many companies are a lot of smoke and mirrors after all of the cheap and easy credit is gone.  The Federal Reserve has been purchasing mortgage backed securities at nearly full face value thereby driving down yields.  Private investors are not going to be nearly as generous.  Bonds will not be bought unless they yield a reasonable return and are priced commensurate with the risks.  If you're a borrower, the good times are over.  It's time to start coughing up some real interest.