The Fed May Not Be Able to Pivot Even If It so Desires

The Fed May Not Be Able to Pivot Even If It so Desires

The Bank of England relieved teetering U.K. markets on Wednesday, announcing a bond purchase program.

By Helene Braun

With the global economy teetering and markets in turmoil – the recent crash of the British pound and bond market being the latest examples – central banks are facing an acute dilemma they haven’t dealt with for a long time: choosing between price stability – tightening monetary policy to keep inflation from spiraling out of control – and financial stability – keeping financial markets from seizing up.

The U.S. Federal Reserve has pledged to keep hiking interest rates until inflation returns closer to the bank’s target of 2%. But that might mean the nearly unthinkable prospect of pushing the financial system into the kind of serious, panic-level trouble reminiscent of the global financial crisis and the COVID-19 pandemic.

American markets are undeniably in stress right now. Bitcoin (BTC) and ether (ETH) are down more than 50% for the year, the Nasdaq 100 has lost 30% of its value and the S&P 500 has shed 22%. Supposedly a place to hide during asset crashes, the bond market – as represented by the “risk-free” 20-year U.S. Treasury bond – has underperformed the S&P, losing 30% in 2022……more here

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