Did the Fed break more than they intended?

You see, the problem is not the tightening itself: a slow, methodical, gradual hike by the Fed would be more than welcome to offset over a decade of catastrophic monetary policy which saw QE and ZIRP (as well as NIRP) become the law of the land. The problem, as Kumal Sri Kumar noted correctly, is that what the Fed is trying to do – in response to Biden’s constant proddings, with the White House desperate to undo 14 years of excesses in a few weeks – is equivalent to a patient hoping to undo more than a decade of weight gain by stopping eating altogether in hopes of losing all the weight in a few days. The result is always one and the same and it’s always tragic. And yet, looking at Reynold’s chart, 10Y TSYs have gone on a crash diet and haven’t eaten for a near record 9 weeks, so to speak.

And amid this unprecedented food deprivation prompted by the Fed’s hyper-aggressive tightening path, it’s no longer just us warning that something will break, especially after both the BOJ and BOE broke: in just the past weeks virtually every economist and strategist has joined in the chorus, culminating on Friday with Bank of America’s credit team which warned that the bank’s proprietary Credit Stress Indicator (CSI) jumped 4 pts on the week to close at 74th %ile, exceeding the June peak of 71 and entering the “critical zone” (north of 75) beyond which the risk the of credit market dysfunction rises exponentially.