LONDON, Oct 16 (Reuters) – The Federal Reserve and U.S. banks appear to be operating in parallel universes. One sees tightening liquidity and the other seems awash with it.
In an already puzzling year with multiple disconnects between seismic U.S. economic policy changes and the reaction of both the economy and financial markets, this week threw up another puzzle.
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On Tuesday, Fed Chair Jerome Powell delivered a pointedly dovish speech, emphasizing a weakening labour market but also signs of tightening liquidity within money markets.
The comments cemented market expectations of two more interest rate cuts by year-end, with little or no official economic data at the moment to contradict Fed assumptions due to the U.S. government shutdown.
But Powell also encouraged speculation that the Fed’s
Fed and US banks seem to be in different worlds
