Fed Chair Powell keeps tightening. As Darren Winters explains; in its latest rate decision, Fed Powell has taken the target range for its benchmark funds rate to 2.25 percent to 2.5 percent. The move marks fourth increase this year and the ninth since it began normalizing rates in December 2015.
Fed Chair Powell keeps tightening despite President Donald Trump’s tweets against rate hikes. On Monday, US President Trump said “it is incredible” that “the Fed is even considering yet another interest rate hike”.
Fed Chair Powell keeps tightening despite everything being in the red for 2018
But as Darren Winters comments, it is the Fed’s unwinding of its massive balance sheet (quantitative tightening QT) which is estimated to be 4.2 trillion USD that got market participants all riled up.
Everything was awesome and then Jay Powell said the following: “Some years ago, we took away the lesson that the markets were very sensitive to news about the balance sheet, so we thought carefully about how to normalize it and thought to have it on automatic pilot, and use rates to adjust to incoming data. That has been a good decision, I think, I don’t see us changing that…. we don’t see balance sheet runoff as creating a problem.”
So Fed Chair Powell keeps tightening, QT is now on autopilot and the Fed is not too worried about a bear market in stocks
Dow futures fell 910 points from its immediate post-Powell highs. The Dow took out the Feb lows back to Oct 2017. Banks stocks were battered even more sinking to their lowest since Nov 2016.
The Treasury market was also impacted by Fed Chair Powell’s hawkish stance. Treasury yields tumbled… With 10Y below the key 2.80% level.
On the foreign exchange, the USD surged back above pre-Payrolls levels and that sent commodities lower.
The Fed Chair Powell keeps tightening despite the market’s worst year since 2008, worst quarter since Q4 2008, and worst December since 1931!
What’s more the Fed is not cutting their rate outlook by a mere one hike with many now believing that 3 more rate hikes could be ahead in 2019.
Fed Chair Powell keeps tightening and that has laid to rest the largest and longest artificial bull market in history. Over the last decade stocks experienced a 300% increase due to $15 trillion in central bank liquidity which created the “everything bubble” in the process.
Fed Chair Powell keeps tightening and that is likely to further rattle US President Trump
Fed Chair Powell has his work cut out for him: How to deflate the bubble of everything without creating a systemic risk and how to manage an ever-increasing irate US President. I would not be surprised to hear Trump’s famous two words, “you’re fired” directed at Fed Chair Powell. But don’t hold your breath waiting for a change of policy at the Fed even with a new Fed Chair, after all, it is the Fed’s secret shareholders who decide the candidates that US president can choose. It is an illusion of choice, the puppet masters are always in control.
So Fed Chair Powell keeps tightening and that could now be the Fed’s mandate. There may be trouble ahead.