There seems to be a game out there to try and predict Fed movements.
After all, it's clear liquidity is the name of the game for markets: Strong liquidity means bold and aggressive buying of stocks. The opposite holds true when there is a choke hold on liquidity. I have to say, though, the Fed is going to provide enough stimulus to get the economy back on track -- whatever it takes.
But as we look to the calendar and some improvements in the the job market and the pandemic, there seems to be a clock now on the extensive monetary stimulus -- or at least one that is being gamed by some market players. Yet, we did not hear of any such talk from Fed Chair Powell last week. In fact, he emphatically said there won't be any change in policy for the foreseeable future. In addition, when there is a change to occur, the Fed will give everyone significant notice and word -- perhaps a year in advance.
Is that enough for anyone to stop guessing or gaming the Fed? Apparently not, as the Fed Funds Futures market seems to be active once again. This had been dormant for over a year now, with nothing being predicted for rate hikes whatsoever. But as the economic data improves to the point where the economy can somewhat "survive" without the Fed's assistance, then the style and process of the trade is going to change dramatically.
Since last year, the Fed's generous monetary stimulus triggered a worldwide flood of liquidity into markets, so much that there is a worry of rampant inflation at some point. Gold is not signaling that, however, but certainly other commodities have been spiking on strong demand coupled with lower supply stocks.
If the Fed sees more positives in the data, it will have no choice but to shift gears. We heard one Fed speaker -- Robert Kaplan of Dallas -- last week suggest a tapering of bond purchases should occur very soon, likely before 2021 is over. If that should happen -- which is highly unlikely before December -- then markets are likely to shake hard. Remember, the Fed is a group of inflation fighters, regardless of what is happening in markets or elsewhere. Their dual mandate of stable prices and full employment dictate action when it's necessary.
