The Fed Poo-Poos Climate 💩

GM and BRRR

Volatility remains muted headed into the last day of the week - the desired bi-product of Fed policy.

• By elevating interest rates as high as they have the Fed has capped upside in equities and risk assets.

• By bailing out failing banks with its unlimited ability to create money and new programs like its Bank Term Funding Program, the Fed has capped downside overall.

This two-pronged approach at such massive scale has pressured the market into a tight, consolidated range. If you’re familiar with option trading, it’s as if the Fed is selling both Calls and Puts at tremendous scale.

It’s a dangerous game to play given just how fragile the banking system remains.

Have a great weekend everyone.
 
Here’s what we brrr’d today:

• White House Delays Debt Ceiling Meeting

• Fed Governor Waller Downplays Climate Change

White House Delays Debt Ceiling Meeting

• Biden Delays Debt Ceiling Meeting: The White House has postponed a crucial meeting originally scheduled for today, between President Biden and GOP leaders, to negotiate a raise or extension on the debt ceiling.

• Manchin & Biden Spar: Senator Joe Manchin calls out President Biden's stance on raising the U.S. debt limit without additional conditions such as spending reforms, deeming it "hypocritical," "not rational," and "not reasonable." Biden and his admin argue that Republican lawmakers have accepted debt-ceiling increases without new spending control measures in the past.

• Republican Proposal: With the U.S. nearing its $31.4 trillion debt limit and a potential default on the horizon, the Republican-majority House of Representatives passed the "Limit, Save, Grow Act of 2023." This Act permits $1.5 trillion in new debt, in exchange for spending cuts and reforms totaling an estimated $4.8 trillion over the next decade.

• Sovereign Default Risk Looms: The ongoing situation has led some to suggest that the U.S. has never been closer to a sovereign default. Markets price the risk currently at around 4%.

  Epoch Times

Fed Governor Waller Downplays Climate Change

• Waller's Climate Risk Assessment: Fed Governor Christopher Waller asserts that climate change does not pose significant, unique financial risks that would necessitate special attention from the Federal Reserve in its supervision of the financial system.

• Alignment with Chair Powell: Waller's perspective aligns with Chair Powell's stance that the Federal Reserve's role does not involve steering investment away from certain industries, such as fossil fuels, based on climate considerations.

• Dividing Climate-Related Risks: Waller divides climate-related financial risks into physical risks (e.g., fires, hurricanes, rising sea levels) and transition risks (e.g., policy changes, technology transitions), and argues that neither category is unique or material enough to require special treatment within the Fed's financial stability framework.

• Focusing on Near-Term Risks: He concludes that the Federal Reserve should maintain its focus on near-term, significant risks, asserting that climate-related risks should not be given an outsized focus within its policies and monitoring efforts.
  ZeroHedge

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