Posted by on July 11, 2017 4:45 pm
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Categories: Bond Business Central Banks Committees Crandall economics Economy Economy of the United States Federal Open Market Committee Federal Reserve Bank of Philadelphia Federal Reserve System Jamie Dimon Janet Yellen None Patrick T. Harker Philadelphia Fed Sovereign Debt US Federal Reserve yellen

Janet Yellen confidently stated at the last FOMC press conference that The Fed will start unwinding its massive balance sheet “relatively soon” and Patrick Harker, the Philadelphia Fed president, has said the process will be so dull that it is equivalent to watching paint dry.

Not everyone agrees…

Louis Crandall, an economist at Wrightson Icap, said at the time:

“When they [the Fed] launched QE, they were confident about the direction of the impact but cautious about projecting the precise magnitude. They should be even more cautious about estimating the impact of unwinding the portfolio, as they have even less control over the outcome.

The unwind will be lumpy for sure…

And today, none other than JPMorgan CEO Jamie Dimon poured some more cold water on The Fed’s complacency at this ‘storm in a teacup’. Speaking at a conference in Paris this morning, Bloomberg reports that Dimon warned…

“We’ve never have had QE like this before, we’ve never had unwinding like this before.”

“Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.”

“When [the unwind] happens of size or substance, it could be a little more disruptive than people think.”

“We act like we know exactly how it’s going to happen and we don’t.”

Central banks would like to provide certainty but “you cannot make things certain that are uncertain,” Dimon said. All the main buyers of sovereign debt over the last 10 years — financial institutions, central banks, foreign exchange managers — will become net sellers now, Dimon said. Investors are listening closely to policy makers to determine when and how central banks will start reducing their balance sheets. A global bond rout spilled over into equities last week on signs that central banks are taking a more aggressive stance.

“That is a very different world you have to operate in, that’s a big change in the tide,” he said. “The tide is going out.”

Will “the tide is going out” be the “the music stopped playing” quote of this collapse?

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