Payden & Rygel: Don't get carried away blaming the Fed
Payden & Rygel: Don't get carried away blaming the Fed
When market turmoil erupts, investors demand an explanation - or, more often, someone to blame. Central bankers serve as easy targets for such ire. 'Blame the Fed,' many investors say. 'They're obviously behind the curve.' We don't think the story is so clear-cut. One might blame the Bank of Japan (BoJ). After all, while the Fed held rates steady last week, the BoJ hiked.
Why does that matter? Decades of low rates and a weaker yen made borrowing in yen attractive (since it's cheaper) to global investors. We have seen the yen-carry trade play out before (e.g., 2006-2008). This time, tech stocks, global bonds, and crypto may have been destinations for the levered capital. Unwinding positions all at once might explain the global cascade of financial market movements. What doesn't explain the turmoil? The U.S. labor market. Data this week showed the largest drop in layoffs over a week this year.