The Powell Put Revisited....

davfor

Perhaps things have fundamentally evolved. If so, perhaps the outlook for interest rates is not as ominous as the one suggested by Gundlach and others. The Fed appears to be beginning to embrace this possibility....

A Fed pivot, born of volatility, missteps, and new economic reality...interviews with more than half a dozen policymakers and others close to the process suggest it....marked a more fundamental shift that could define Chairman Jerome Powell’s tenure as the point where the Fed first fully embraced a world of stubbornly weak inflation, perennially slower growth and permanently lower interest rates.

One question, for example, is whether to make crisis-fighting policies a part of the routine toolkit. Another is whether to try to prepare the public to accept higher inflation from time to time.

The January statement, JP Morgan analyst Michael Feroli wrote recently, showed the Fed “subtly but profoundly evolving” to a new view of the world where a variety of forces have changed the way inflation and interest rates work, and have now changed how the central bank responds.

https://reuters.com/article/us-usa-fed-pivot-insight/a-fed-pivot-born-of-volatility-missteps-and-new-economic-reality-idUSKCN1QB0IK?il=0

hank

Thanks @davfor - Article contains some great analysis of the Fed’s and Powell’s apparent shift in strategy. IMHO that’s what stopped the market slide and precipitated the recent spike in gold and most commodities. Can they keep the rally going? Here’s a “Golden Oldie” from the Bernanke period. Some believe that if the markets falter again we’ll see a return to QE.

davfor

@hank Thanks for the "Golden Oldie" . It looks like the Fed is implementing at least intermediate-term updates both to its view of the economy and to the extent to which it will attempt to micro-manage it on a routine basis going forward. The January pivot suggests it may be prepared to intervene fairly aggressively -- whatever new "tricks" that may entail if we are still in a low rate world -- when the economy shows significant signs of faltering. Their recent pivot has been welcome to me so far in 2019 given my decision not to reduce my percent allocated to stocks this year. Moving forward, I am concerned that micro-management brings with it risks for novel forms of major missteps. I too wonder how long they can manage to keep all the balls in the air.

hank

@davfor - Thanks for commenting. Doesn’t seem like that long ago the Fed was shoveling liquidity into the system at a rapid pace. I also stayed put. Didn’t expect the turnaround so soon. Unlike past market rallies, this time the customary inflation hedges (gold, oil, real estate, raw materials) are joining in. It’s about time.

davfor

Stock market weakness since the start of 2022 has made me wonder what might cause the Fed to alter its anticipated course of action for the coming months. Perhaps -- in large measure due to the cumulative effect of actions taken by the Fed and Congress since the start of 2019 -- conditions have evolved to the extent that inflation finally has the upper hand. If so, this article suggests the Fed's present course of action will continue for an extended period of time even in the presence of a continued stock market drop.

“The policy path of least regret is, for the first time in a generation, to deal with higher inflation and inflation expectations now and worry about the consequences for growth and financial market stability later,” said Athey. “This is a world that most investors have never experienced.”

Stocks Trading on Fumes Probably Aren’t Keeping the Fed Awake

stayCalm

I predict that this week's SP500 close will be higher than today's close and there will be articles around the theme of "rising rates due to strong economy is a good thing"

Now that I have officially made the forecast, expect the opposite to happen!

davfor

Another suggestion that a Powell Put may well be slower to show up this time around even if the stock market buckles under the pressure...

Jerome Powell stuck to one message Wednesday, that the economy is strong and inflation must come down. Harried stock traders thought they heard another one: you’re on your own.

Jittery Markets Buckle as Powell Signals They Must Go It Alone