QPM General Discussion Thread, page-311

His underpinning thesis pins the market rally hope on, is the FED rescuing the market in the same way they did in 2018. The significant FED input this time around and not then, is inflation being an obviously monstrous challenge to the US government and voting constituents.

They have already said they want to dampen demand sufficient to equalize supply and intend on doing so with rate hikes. Obviously there is an element of hawkish jawboning associated with their attempt to talk down the markets and therefore the demand curve. The longer term challenge is debt, but right at this point in time their average interest rate is historically low and locked in until they need to roll the debt.



Additionally, whilst nominal interest payments is historically high (first chart), the percentage to GDP is mid channel with more room to move. So the potential interpretation given they are also pushing a higher dollar (for economic and sovereign strategic reasons) is they still have time and sufficient rate hikes up the sleeve to drive down demand and hence inflation. Past that point however, will be the need to pause and only then is it likely the market generally (may not impact quality assets with compelling reasons) will continue to sell off. Powell keeps referencing Volker, but he is trapped medium to long term.

That aside, they need inflation to remain relatively high so real rates remain sufficiently low for them to pay down the debt, but that naturally depends on GDP and tax receipts. A tight rope act of the century!