When is the Fed going to pivot?

Putting a time line on the inevitable

They might as well call it Hotel California. Once you check in to QE, you don’t check out. A Fed pivot is only a matter of time but the thousand dollar question is when? As Jim Bianco points out, the market seems to once again believe that the pivot is nearly here. Is it?

Jim Bianco biancoresearch.eth @biancoresearch

1/2 The mkt is starting to price in a pivot again, from the blue line to the red line. Here we go again; the mkt has priced in many pivots this year, only to be disappointed over and over. Will the mkt get disappointed again, or is the stopped clock right on the 5th/6th try?

I am skeptical that the market is right. If you’d asked me two weeks ago, I would have said that the pivot is 3 to 6 months off. Given recent developments I’ve lowered my time line to 1 to 3 months. The cracks are growing in magnitude but the mountain is still holding together.

• The English pension system almost blew up, but the BOE rescued it (for now)

• The dollar has backed off

• The markets bounced hard off the June lows and have started another impressive (and in my opinion scam) rally

• Treasury yields are down

• The whole Credit Suisse thing turned out to be a nothing burger, for now at least

We were headed for cliff’s edge but course corrected moments before drunkenly tottering into the abyss. I have full faith that we’ll careen into hell at some point in the next month or two, but I doubt it will be tomorrow.

Danielle Dimartino Booth has made the point that she believes J Pow Pow is trying to secure his legacy. The new Volcker, the dashing Fed chair who recanned that dastardly inflation (never mind the Fed’s role in letting inflation out of the can in the first place). If Danielle is correct, it means that ol’ J doesn’t want to pivot. He’d prefer to see this monetary war through to the end and the only reason he’ll surrender is if something meaningful blows up.

So I guess the real question is simply, when is something going to blow up? I expect that this latest rally will roll over in a week or two and we’ll make new lows sometime in October or November. As Europeans burn dung to warm their homes and America hurtles through another contested election season, I reckon there’s a good chance we’ll get our blowup and the Fed will be forced to pivot before the end of the winter.

That’s my base case anyways, time will tell if I’m right.