Halister News

(Bloomberg) -- While there’s some element of truth to argument Fed is stuck in adverse feedback loop and mkts won’t let it hike, “it exaggerates the constraints on the Fed,” BofAML economists Ethan Harris, Alexander Lin wrote in note.

• Fed should be able to continue cautious exit without major disruption to mkts; China and oil news, not Fed, are dominant drivers of recent risk-off moves in mkt
• While bond mkt selloff played some role in delaying Fed tapering in 2013, “in our view it was only part of the story”
  • Both inflation/growth indicators had slowed; slowdown in inflation can’t be blamed on Fed because inflation lags behind policy shifts
• Some say Fed delayed liftoff in mid-2015 in face of surging USD; BofAML says unusually sharp USD move from 2013 to early 2015 was largely due to one-time regime shift at three major central banks: Fed, ECB, BOJ
• Big story of the last year is not fear of Fed, but China and oil; Fed-related news was generally positive for stocks, reflecting dovish statements and actions
• “Maybe, just maybe, the hyper-ventilation about the Fed is overdone? Maybe, continued calm in China and in the oil market mean a continued risk-on trade in capital markets? And maybe the world does not fold over every time the Fed sneezes?”