RBA blundering behind Australia’s soaring interest rates

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Chris Joye of Coolabah Capital with the note:

The bigger problem for equities is the fact that the US market is still bizarrely only pricing in a terminal Fed funds rate of just 1.87 per cent, which is miles below the Fed’s “neutral” 2.5 per cent rate. It is further still from the restrictive, circa 3 per cent plus cash rate the Fed thinks it would need to impose to wrest an inflation spiral back to earth.

This is the existential question for equity/crypto valuations: how far do they fall if and when the Fed lifts its cash rate to 2.5 per cent or more? Most Fed watchers now agree that the world’s most important central bank will try to get to neutral, or 2.5 per cent, as quickly as it can. Ironically, the more equity investors ignore this risk, the harder the Fed will likely go. If and when it gets there, total equity drawdowns could be greater than 20 per cent.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.