The Fed has begun its balance sheet reductions which those in the industry have labeled ‘quantitative tightening’. QT may be a leading cause of market volatility, as has historically been the case such as 2018. While the Fed poured trillions into the economy to mitigate the effects of the Covid-19 pandemic they are pumping the breaks as a response to rising inflation. One way to gauge the impact of these measures is surveys of consumer confidence which are at their lowest levels since the 2008 financial crisis as reported by the University of Michigan survey. Some experts think this won’t have a strong impact on the rampant inflation because many of the causes are symptoms of Covid related supply shortages. As a result investors are looking at various volatility based solutions to wade the Fed’s storm.

Finsum: The yield curve has begun to flash warning signs of a recession, but maybe the Fed can still orchestrate a soft landing.