Stock Futures, Bonds Yields Stabilize After Fed-Driven Selloff
Wall Street Journal
The Facts
US mortgage rates are rising at their highest rate in almost 3 decades as the Federal Reserve ("Fed") moves to raise interest rates in order to control inflation.
Minutes from the Fed's Mar. meeting were released this week, revealing that the central bank is looking to trim its balance sheet by selling some of its $9T in bonds, including $2.7T in mortgage-backed securities.
The Spin
Narrative A
There's a broad consensus among Fed bankers and economists that the time is right for some quantitative tightening to reign in inflation. Inflation is high and the labor market is tight, so the Fed is acting well within its mandate to try and tamp down inflationary pressures.
Narrative B
60% of Americans live paycheck-to-paycheck, and many are already having to cut back on expenses as inflation rips through the economy. If the Fed moves too quickly with quantitative tightening, it risks sending the economy straight into a recession.
Cynical narrative
The Fed has been stuck with a bloated balance sheet since the financial crisis in 2008. It tried to unwind its positions in 2019, but was forced to abandon the moves as markets wobbled. Conditions haven't improved since then, so there's no reason to believe that the Fed to follow through on this latest round of monetary tightening.