Sit tight

I think today could be one of the more uneventful Fed meetings in a while. What could Powell really say in his presser that could surprise us after speaking just a few weeks ago acknowledging the tightening of financial conditions via the rise in long rates and by saying "Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline." And even as they just play the 'sit tight' game (pun intended), QT continues on so monetary tightening progresses each month that their balance sheet shrinks at the same time rates stay high. If there is something to be learned today, it's what their plan is from here with the Treasury/MBS roll off. What are they thinking is the right size the balance sheet should settle out at? What level of bank reserves should be targeted as the new normal? The last time Powell tried to answer the question he basically said, "We'll know it when we see it." 

With respect to Treasury yields, as I said the day after the 5% level was breached in the 10 yr yield, we likely have seen a short term top but only short term I still believe. 

With respect to the BoJ, they keep chasing their own tail and are working at cross purposes with the Ministry of Finance. A day after loosening YCC, they were back in the market offering to buy JGB's but the 10 yr yield did rise another 1.4 bps to .96% after getting as high as .974%. Also, on that sharp yen selloff, which was the biggest since April, which is directly attributed to the BoJ tip toeing their way to tightening policy and keeping NIRP in place, a currency official at the MOF said "We're on standby. But I can't say what we'll do, and when. We'll make judgments overall, and we're making judgments in a state of urgency...We're very concerned about one-sided, sudden moves in currencies. Fundamentals don't move several yen in one night." This is a really silly game between the two government arms. The yen is up slightly in response to another verbal yen intervention threat. On a purchasing power parity basis, the yen is dirt cheap and if the BoJ can sometime stop with the negative rate policy, there is a huge rally to be had vs the US dollar.