Part 6/15:
The Fed’s Role and Market Manipulation
Greg agreed, emphasizing the Fed's enormous influence. Larry and Greg highlighted that the Fed's actions—setting rates, jawboning, and creating expectations—have historically maintained low yields to support economic growth. However, current inflationary pressures and the sheer scale of debt markets have rendered the Fed's tools less effective or even counterproductive.
Larry painted a vivid picture of a market that perceives the Fed as having 'their back', leading investors to accept unreasonably low yields. But recently, market signals suggest a shift: the bond market is reacting negatively to the Fed's hawkish statements, hinting that the 'put'—the implied support the Fed gives—might be crumbling.