Powell Needs You to Buy Bonds so the Fed Can Buy Time

investing.com:

A few weeks ago, in light of Powell’s Jackson Hole speech, I noted that the Fed was focusing its monetary policy on preventing the bond vigilantes from taking control of the rates market, thus spoiling the soft-landing party many (the Fed included) have been betting on.

But to do that while controlling inflation, I noted, the Fed needed to keep stock market expectations put, maintaining speculative capital as far from the labor market as possible.

“The Fed finds itself uncertain about its future course of action. However, as it has found out, it wants things to stay that way.

That’s because two intertwined opposing forces are pulling markets: the expectation of the end of the rate hike cycle and the probability of a recession in the near term. Against this backdrop, Powell has realized he can manage forces spanning from either of the aforementioned factors by keeping the equity and debt markets at a consistently high risk.

This indicates that regardless of whether the Fed decides to raise rates once more, conditions will continue to be highly constricted along the entire spectrum of interest rates and within the broader economy.”

Fast forward to now, with a worse-than-expected CPI reading in the bag and rising oil and food commodity prices, the game hasn’t changed, yet the stakes are certainly higher.

That’s why Powell, more than ever, needs to buy time. And how to do that? Well, by selling bonds for once.

The debt-reliant US economy cannot run without more issuances. However, persistently high rates have kept treasury risks high, leading to the selloff we’re seeing now.

Calculations are that if the current pace of debt growth persists, the federal burden is projected to escalate from $32 trillion to