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Torsten Slok:
The dramatic change in recent weeks in the narrative in markets from “the economy is strong” to “we are all becoming unemployed” is truly remarkable.
AI expectations are no longer just disrupting the equity market, with sectors such as software under pressure.
The Core Thesis > Joseph Wang argues that the Federal Reserve is losing its independence over its balance sheet policy due to the massive U.S. fiscal deficit. This "Balance Sheet Dominance" means the Fed’s balance sheet size is now dictated by the need to fund the government and keep the repo market stable, rather than by purely discretionary monetary policy goals.
1. The Demand for Repo Financing
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