Last week inflows in money market funds pushed the total AUM above $ 6 trillion for the first time. All this money is continuously watching the Federal Reserve Chairman's words to anticipate what happens next. And given his two appearances during last week there was plenty to decipher. First was the FOMC brief and second was the short interview during the 60-minute show.
The common aspects were clear that the March meeting would not be where rate cuts start as all of them need more data to confirm the trend. Another common aspect was that almost all members agreed on a rate cut starting this year. In the interview, he hinted that there might be three cuts this year beginning middle of the year.
This is where it gets tricky, Fed Swap rates are currently factoring five rate cuts. This has kept bond yields contained as of now. However, the risks of these estimates being adjusted might increase within weeks. And as these odds get adjusted the yields might see a spike again.
Another important thing that he mentioned was that members started a discussion on the speed of Quantity Tightening and they would continue the discussion at the next meeting. It was also specified that reverse repair does not need to go to 0 or inflation to 2% for the tightening speed and rates to be adjusted respectively.
Thus, the path from hereon is fragile and might result in a high volatility environment for a few quarters as the uncertainties in the system unfold on an actual timeline.