MKM Partners’ Darda Says Fed Is Biggest Wild Card

The video discusses the Federal Reserve's plan to shrink its $4.5 trillion balance sheet and its potential impact on long-term interest rates. Michael Darda suggests that while the immediate effect might be higher rates, the long-term effects could include slower nominal growth and lower inflation. Historical examples from Japan and the ECB are used to illustrate how balance sheet changes have affected interest rates. The video also speculates on the future of Fed leadership, particularly Janet Yellen's role, and compares the balance sheets of the Fed, BOJ, and ECB.

What is the immediate effect of the Fed shrinking its balance sheet according to Michael Darda?

• Increase in nominal growth

• Liquidity effect driving rates up

• Decrease in long-term rates

• Increase in liquidity

What historical event is used to challenge the view that selling bonds will raise long-term rates?

• The Fed's QE efforts

• Japan's first QE reversal in 2006

• The ECB's bond purchases in 2015

• The US financial crisis of 2008

What is a potential scenario for Janet Yellen's future at the Fed?

• She will move to the ECB

• She will retire voluntarily

• She might stay on if Trump decides not to change leadership

• She will definitely be replaced

Why is the BOJ's balance sheet so large according to the discussion?

• To compete with the ECB

• To support rapid economic growth

• Due to high inflation rates

• Because of prolonged monetary deflation

What lesson is suggested regarding unwinding a balance sheet?

• Avoid premature actions to prevent economic instability

• Follow the ECB's approach

• Do it quickly to avoid inflation

• Increase interest rates first