Watch Out for the Fed's Hawks: Ritholtz Chart

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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Torsten Slok, chief international economist for Deutsche Bank AG, warns about the hawks on the Federal Open Market Committee getting too, well, hawkish.

The flowchart above shows the different transmission mechanisms of monetary policy. Slok uses it to highlight the widening spread between investment-grade and high-yield junk bonds.

If and when investors decide that the Fed's extraordinary accommodation is ending, a bond selloff could occur. Such a sell-off might affect consumer spending and corporate capital expenditure. According to Slok, if the selloff is large enough in various fixed-income markets, it might even cause a recession.

The FOMC announcement comes today at 2:00 p.m. (Washington time).

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at britholtz3@bloomberg.net