The Fed will likely hike by 25 BPS today (although we hope for 50 BPS). On the subject of a Fed pivot, market commentators seemingly always neglect to mention the QT component. QT is a more powerful monetary policy tool than is the Fed Funds rate in our view. Banks can’t lend a Dollar that is not in circulation after all.
The Fed will not have “pivoted” until it both lowers its Fed Funds rate and ends QT. Our view is that the Fed will pause rate hikes around the April/May timeframe but that QT will continue. Don’t underestimate the power of QT. Shrinking the money supply is a very powerful tool. The Fed did just that during the Great Depression. As Americans moved to withdraw funds from banks, the Fed shrunk the money supply, thereby exacerbating the problem both in terms of bank runs and further weakening the economy. We hope QT lasts the duration of 2023 and that we never see QE again for the sake of the country and its bloated debt load / price inflation problem.