The Federal Reserve Is Now Ready to Blow It All Up
Peter Schiff, CEO of Euro Pacific Capital, said that it's "impossible" for the Fed to unwind its balance sheet. In turn, he forecasts a recession in the not too distant future. While that may be extreme, Schiff touches on a key point the feel-good-investor must now consider: we have never seen a Federal Reserve try to unwind a balance sheet of this size before, no less against the backdrop of robo-trading and real-time news. Get ready for an interesting October, folks.
Here's what BlackRock says will happen to interest rates when Fed slims down its balance sheet
- The Fed is expected to begin unwinding its giant $4.5 trillion portfolio, and it should not immediately have much impact on interest rates, according to BlackRock's global chief investment officer of fixed income.
- Rick Rieder says the 10-year yield could get to 2.50 percent this year, but will rise more next year as the Fed increases the amount that it is shrinking its portfolio by to $50 billion a month.
- BlackRock also sees huge demand for Treasurys, and that should keep U.S. yields low.
Bill Gross: "If they followed their plan … which basically projects over the next two years for fed funds to reach 2.8 [percent] or even 3 percent, a 170 basis point increase, then yes a recession is possible,"
- Whether or not the Fed leads the U.S. economy into recession depends on whether it sticks to its fed funds forecast, Bill Gross told CNBC.
- On Wednesday, the Fed reduced its long-run target for the fed funds rate to 2.8 percent.
"They just have to be very careful because it's a highly levered U.S. economy. It's a highly levered global economy and currencies and the dollar and other related assets like gold will move substantially if the Fed overstates its case," Gross said Wednesday.