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Deutsche: Powell's Fed Has Already Pulled A Volcker-Level Shock


Deutsche points out that the Fed has delivered something not seen since Paul Volcker ran the institution: with rate hikes and hawkish forward guidance, Deutsche's shadow policy rate has risen by 2.8 percentage points over the past 6 months, the most since 1981.

  • "While extreme, the movements in our shadow rate are consistent with a variety of data points, including the current yield curve, peak fed funds rate pricing from last cycle, and the sharp tightening of financial conditions in recent weeks."
  • They see the Fed following through on tightening and eventually causing a recession: "our shadow rate ... suggests that the Fed’s actions have already gone a long way in better positioning monetary policy to respond to the economic outlook."

6 month change in DB "shadow rate"Source: Deutsche Bank

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