Though I say, write, and communicate all the time how the Federal Reserve is not a central bank because it doesn’t do money and that therefore its non-money monetary policies are little more than pop psychology conveyed via an increasingly stale puppet show, you might be surprised to learn that none other than Janet Yellen has publicly agreed with my summation.

She didn’t use that language, of course, and Ms. Yellen was very careful to instead set her version of the same thing in a more favorable light. Yet, it all adds up to the same anyway; our differences are not about what the Federal Reserve does, rather if what it really does has been effective.

Before she ascended to the Chairmanship, Vice Chairman Yellen in April 2013 spilled the beans:

The crucial insight of that research was that what happens to the federal funds rate today or over the six weeks until the next FOMC meeting is relatively unimportant. What is important is the public’s expectation of how the FOMC will use the federal funds rate to influence economic conditions over the next few years.

In case she wasn’t being absolutely clear, she follows the above with this beauty:

Let’s pause here and note what this moment represented. For the first time, the Committee was using communication–mere words–as its primary monetary policy tool. Until then, it was probably common to think of communication about future policy as something that supplemented the setting of the federal funds rate. In this case, communication was an independent and effective tool for influencing the economy. The FOMC had journeyed from ‘never explain’ to a point where sometimes the explanation is the policy. [emphasis in original transcript]

And still to this day the public thinks QE is money printing.

Instead, “sometimes the explanation is the policy” has been expunged of whatever had been left of any ambiguity (by real money necessity, GFCs and all); with the first QE, it became, “the explanation is the policy.” Full stop.

In other words, if the Fed does QE – whatever it actually is – they are communicating something specific to you. That you should be optimistic and happy for reasons beyond your grasp; just go along with what the “best and brightest” tell you.

So, does this complicate the rate hikes set to begin under two weeks, or what?

Not for Jay Powell, Yellen’s hapless successor, as he gets set to follow in both hers and his own footprints. Each had tried to communicate once before how rate hikes meant the economy was doing awesome if not in danger of growing too awesome, only to be thwarted and confused by real events – Yellen after an embarrassing single hike in December 2015, before then resuming an entire year later and handing a set of hikes off to Powell in 2018 only for him to get stopped long before he had expected.

In this context, what’s going on in the eurodollar futures curve like the yield curve actually makes perfect sense. Perfect.

Powell’s FOMC has been communicating rate hikes for months. Everyone knows about them. The bond market has been saying something more profound right back; we hear you, and we disagree on pretty much everything including the rate hikes.

This disagreement has only grown worse given time. As the Fed is set to embark with only its first of them, the level of skepticism behind the Fed’s reasoning has stiffened; inversion in eurodollar future expanding in breadth as well as depth.

And it has nothing to do with the rate hikes themselves, the priced or anticipated number of moves nor they quickness by which they may be conducted. The inverted curve shape has been unmoved over the past few weeks demonstrating, conclusively, whatever the Fed is communicating doesn’t really matter (again).

From late October (coinciding with everything else, from repo fails to swap spreads), the eurodollar curve flattened and by December 1 it inverted. What followed was little change, as expected. By the middle of February, the inversion accelerated across both dimensions.

While this might at first appear consistent with at least the idea of a policy error – that the rate hikes themselves are creating too much “tightening” and therefore more rate hikes mean more problems down the road for the curve to worry about – that wasn’t reflected in those other market indications (especially swaps).

Regardless, over the subsequent few weeks when the market repriced rate hike potential (lower) based on the higher potential for trouble from Russia/Ukraine, notice what happened to the curve; or, more specifically, what didn’t happen:

Fewer expected rate hikes, yet the inversion remained and even grew a tiny bit further. Unless you’re willing concede that the economy is so weak it can’t tolerate any number of them, which is essentially the same thing as the curve behaving as if deflationary potential is too much to begin with.

OK, but maybe the steady inversion up to March 1 was the curve pricing fewer hikes but now more negative fallout from the fighting in Eastern Europe:

Except, in just the past two days the entire market has gone back into rate hike expectations as, for now, anyway, it reduces that negative spillover potential. Yet again, the curve shape in the back end remains distorted nevertheless. In fact, it has gone even more upside down, the back end behaving independently of the front.

No matter how many hikes or what goes on up there, the back has been way too consistent anyway.

The inversion top to bottom, reds through greens and blues, is today almost 30 bps. In case you don’t follow this deep, sophisticated corner of the market with an actually enviable track record (which isn’t all that impressive once you realize it’s betting against the likes of Yellen and Powell who wield nothing more than “communication”), being distorted by that much is a rare display of confidence against whatever’s being priced up front.

And up front, the whites and reds are the Fed. Or, they should be; nowadays not even all the reds are onboard.

Again, even Janet Yellen had given away the whole game; rate hikes like QE are little more than theater. The reason for this is how the real money gets done elsewhere, therefore financial and economic risks are far away from the Federal Reserve’s tiny grasp, all of it contained within a gargantuan hidden place called the eurodollar system.

The eurodollar system telling you what’s really happening in money and money potential in real time from a market which actually bears its name.

Yet, we’re supposed to blindly follow “the explanation is the policy.”