At issue is what she or they mean when the use the qualifier “worse.” It may be that how policymakers are thinking about it ends up being very different from reality or bond market discounting. No surprise, these two camps have frequently been at odds and for a very long time; Alan Greenspan’s “conundrum” a full seventeen years ago this month.

For example, Federal Reserve Governor Michelle Bowman told a California gathering of the American Bankers Association a few days ago that she absolutely supports a March rate hike. Not only that, this would merely be the first of several to follow.

Hardly anyone disagrees with this expectation. Markets and policymakers are in sync at least where it comes to this part of the process. The FOMC will indeed vote to begin raising rates, but where it comes apart is what then comes afterward.

For Ms. Bowman, it all depends on how the situation evolves; the standard response of the “data dependent” policymaker. In this case, though, she was questioned about a possible fifty, a double-hike right out of the gate.

It depends, she said. 

I think between now and then it is very important that we continue to watch how the economy develops and understand whether or not things are improving or getting worse.

How much can anything change from now to mid-March? Even though the next FOMC date is rapidly approaching, Bowman continued to be vague, adding, “at this point I think it’s too soon to tell.”

More to the point and our purpose, what does she mean by “getting worse?” Since the conference was at the beginning of the week, it may be that Governor Bowman was considering the situation in the Ukraine deteriorating and catching global markets in its maelstrom.

If so, then trading today, at least, would put her mind at ease. While markets began the day under severe strain, it really didn’t take very long for FOMO and risk-on to materialize nearly across-the-board (nearly, which I’ll get to in a second).

It’s obviously possible that tomorrow risk-off returns with a vengeance, or that risk-on follows through for another up-day shrugging off shooting missiles and shot-down helicopters. Who knows what goes on in the shortest run.

Personally, I don’t think that’s what she was really talking about; not that, as a Federal Reserve representative, she isn’t paying close attention to the geopolitics of the day. However, I’d wager the good Governor was instead referring to “inflation” when she told that group of bankers she’d rather wait to see if it gets “worse.”

After all, there’ll be another CPI number (March 10) between now and that next FOMC (March 15-16).

And while Michelle Bowman is safely ensconced in her seat at the Washington Board, others are not – including the Chairman Jay Powell who is up for renomination. There are actually five nominees currently stalled in the Senate as Republicans are holding up confirmation processes due to their united objections against one of them, Sarah Bloom Raskin (who has expressed startlingly open statist positions).

In other words, these Federal Reserve candidates are already at the mercy of a Democratic Congress (not to mention White House) undoubtedly irate having to face the prospects of electoral disaster in large part because of public (and political) perceptions about “inflation” (and, just to be clear, the exact same would be applied by Republicans if the roles were reversed).

Despite claims of “independence” – which really has only meant lack of accountability – the Fed’s voting members are surely being told they have to be seen “doing something” about consumer prices. If these should get “worse” by the next CPI release, that is unquestionably what’s governing Governor Bowman’s decision-making.


Quite conspicuously, this is not the market’s concern; not even close. Over the last nine days (above), eurodollar futures “yields”, for example, have come down (up in price) at the front end of the curve while – this is the important part – at the same time its already-serious inversion has remained remarkably constant.

Even as the market modestly lowers its sense of the possibilities for rate hikes in the short run, it didn’t change the overall back-end curve shape one bit! Succinctly, it isn’t rate hikes which is the cause for inversion, which has now begun to wind its way into the reds where rate hikes are supposed to be whatever the Fed forecasts.

Furthermore, today’s eurodollar futures action, specifically, seems to further dismiss any links to the conflict in Ukraine. During early trading risk-off when the knee-jerk instinct had been “safe haven”, the curve shape was the same as when risk-on came rushing back. The inversion finished up today in near exactly the same position (back end) as it had yesterday, the same shape during early-morning excesses. 

These are compelling anecdotes which illustrate that most likely it isn’t rate hikes nor Russian aggression distorting the eurodollar futures market. And since eurodollar futures are hardly alone in behaving this way, clearly corroborated by the yield curve and swap spreads (or, like today, US$ exchange value), if it isn’t likely (politically-inspired) rate hikes and it’s not worries over Eastern Europe (not to mention how inversion long predated the outbreak of conflict), then it must be something else. 

The market view as to how things might get “worse” for the economy is instead likely far more global than any of those. And that also means local – as in, why would the 28-day T-bill be bouncing around between 2 and 5 bps yield (the 8-week stuck at 18 bps) with a possible 50 bps rate hike, guaranteed at least 25, only 20 days away?