Randay.eth

The way he smiled 😭

Dollar wrecking ball in full swing here.   The dollar’s rapid rise over the past couple of months has massively tightened financial conditions. This sharp move is already taking a toll on US economic surprises – something I outlined as a base case in the GMI and MIT reports back in Q4 of last year.   Economic surprises have already pulled back from their peak levels in November and are likely to continue drifting lower over the near term. This is exactly the kind of lagged impact we’d expect from such a rapid tightening in financial conditions...   Here’s the important part: This setup is exactly what I believe will pave the way for the Fed to step in and begin easing rates further soon – despite the prevailing narrative floating around for zero cuts in 2025 and the forward curve currently pricing in just 28bps for the whole year. However, as I highlighted in my last tweet on the subject, the conditions for a shift towards easing are already falling into place… So, here’s how I see it playing out:   The dollar and yields surged in Q4, creating a significant tightening in liquidity conditions...   Now, with the lag effect kicking in, weaker economic surprises are emerging, and as those continue to deteriorate, the Fed will have no choice but to respond. When that happens, we’re likely to see the dollar’s strength finally capped and the pressure from rising yields start to ease.   This will then help alleviate the liquidity squeeze that’s been building, giving risk assets the breathing room they need to rally again. Bad news = good news…