Wall Street feels it has an “entitlement” to perpetually rising markets. From Wolf Richter at wolfstreet.com:
Their “Everything Bubble” is being pricked “gradually,” and they don’t like it.
Wall Street has been moaning, groaning, and crying out loud about the Fed’s current monetary policies – raising rates and unwinding QE. They fear that these policies will undo the Fed’s handiwork since the onset of QE and zero-interest-rate policy in 2008, now called the “Everything Bubble” (stocks, bonds, “leveraged loans,” housing, commercial real estate, classic cars, art…). In an effort to pressure the Fed to back off, they’re accusing the Fed of making a “policy mistake” and creating “scarcity” of bank reserves.
Here is Bloomberg News this morning. It’s really cute how this works. This is how the article starts out: “Fixed-income traders are telling the Federal Reserve that it might end up making a big policy mistake.”
These folks cannot say that the Fed’s QE unwind and higher rates might unwind some of the wealth of asset holders that resulted from the Fed’s desired “wealth effect.” That would be too clear. So they have to come up with hoary theories to back their “policy mistake” theme. This time it’s the theory of a “scarcity of bank reserves.”
When these folks talk about “scarcity,” what they mean is that they have to pay a little more. In this case, banks are having to pay more interest to attract deposits.
