2021-12-22

Crude Vigilantes Say the Fed Has No Credibility, Fed Speculators Bet Surprise Incoming

The bond market speculators disagree. Speculators have the March rate hike odds above 50 percent. I doubt any Fed officials will say anything with no public speeches scheduled. Next week also has no scheduled speeches, but sometimes officials will appear on a media outlet such as CNBC. If crude breaks the downtrend and keeps rising, the odds of a "rug pull" by a Fed official rises. I expect more officials will call for a March rate hike, a possible immediate end to the taper and/or accelerated balance sheet reduction. They cannot allow a continued rise in crude oil and maintain credibility. Moreover, they cannot allow markets to rise and delay a "rug pull" because it will trigger a larger correction down the road. The are focused on expectations and if they want those expectations lowered, the longer they wait, the greater the correction. This all assumes they aren't still daytrading the market and loading up on deep OTM puts in anticipation of manufacturing Volmageddon 2.0 come January or February.

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