To call the vindication of MMT a reductio ad absurdum, as I did above, is perhaps an exaggeration. MMT economists made some interesting arguments about the interaction of monetary and fiscal policy which orthodox economists and central bankers were wrong to ignore. But what about the Magic Money Tree? If inflation is cured painlessly by the end of the year and Goldilocks returns to dominate the markets for the next decade, as investors are now expecting, then governments will revive their interest in the Magic Money Tree. I too may start to believe in fairy tales—and we can all live happily ever after.

Eoin Treacy's view

The immortal word’s of former Citigroup CEO Chuck Prince come to mine when I see bond yields rising from already high levels, and a risk-on rally gaining traction on Wall Street. ““When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” 

I remain of the view a deflationary shock is the most likely scenario for how inflation comes back down. As asset prices rise, financial conditions are easing. That’s unlikely to be welcome news for the Fed. This week is the quiet period ahead of next week’s rate decision. Several committee members have implied a slower pace of hikes and that is giving market hope that the peak of this cycle is close and abundant liquidity conditions will soon return.

There is good reason to expect we will have shorter cycles in the decade ahead. The long period of declining rates and low inflation are behind us. The speed with which rates have jumped over the last year suggests knock-on effects have not yet begun to show up in the economic data but they will.
For now, a risk-on rally is underway and the Nasdaq-100 is back testing the region of the 200-day MA near 12000 which represents the more than yearlong sequence of lower rally highs.