Phones are undoubtedly ringing at the Federal Reserve

Author: Adam Button | Category: Central Banks

Financial conditions not so accommodative anymore?

Financial conditions not so accommodative anymore?
The Fed won't like this move in the bond market. Powell brushed aside the steady rise in yields since the start of the year as a sign of normalization and confidence in the recovery.

That's probably true but today's move isn't orderly and it's not a sign of confidence in the recovery. It's the kind of thing that has the potential to boomerang back into the economy via higher mortgage rates, corporate rates and a lack of confidence in Treasury market liquidity.

I railed for weeks about the dysfunction in Treasuries last March and no one at the Fed or elsewhere has done anything about it. Now we're seeing another big dislocation.

The Fed's only tool here is to hit the panic button and buy more bonds. I wouldn't be surprised to see some kind of warning overnight. NY Fed President Williams also speaks at 2000 GMT (a bit less than 2 hours from now). He could be re-writing his speech at the moment.

I'd say there's a 50/50 chance the Fed puts something out today and that rises over the weekend if this continues on Friday.

Watch for headlines.

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