The FOMC issued a very bland statement on Wednesday after its two-day meeting. Why did they bother convening for two days to deliver a policy statement that they phoned in last month. In my opinion, Jerome Powell missed a perfect opportunity to flex the FED‘s independent muscles by NOT RAISING RATES. The recent GDP data, inflation measures and robust jobs market provided ample evidence that the market is in need of another interest rate hike.
The equity markets’ resilience in the face of increased TARIFFS indicates that real yields are still too low as money searches for a return above the established inflation levels. In July, President Trump tweeted that he was opposed to the FED‘s current rate rising efforts but he was LETTING THE FED DO ITS JOB. This OUGHT to have prompted the Powell FED to exert its desire to drain some of the froth out of current financial conditions.
Chairman Powell, which of the following provided the greatest fear for you:
The fear of the Bernanke /Yellen policies of not roiling the markets?
This is a legacy that is fostering a bubble in global financial assets. Money kept at ridiculous low levels for too long creates a mispricing of all sorts of debt. Emerging markets and foreign borrowers have gorged on cheap loans as central banks have kept real yields far too NEGATIVE for far too long. The question is whether the FED is a prisoner of the markets or if the markets are captured by the famed Greenspan PUT.
The prescient economist Bill White posed the question to central banks and financial ministries in 2006: DO YOU LEAN OR CLEAN? Wednesday’s failure to raise rates suggests that the FED remains in the industrial cleaning business. The problem with being a maid to the economy means that the next recession will cause a serious shortage of economic options as the FISCAL DEBT rises to dangerous levels, especially as debt servicing costs as a percentage of the budget limits Congress’s ability to embark on substantial stimulus programs.
Did the Trump tweets make you nervous that the President will make you a target of his capricious actions of creating targets for public acrimony?
One thing the Russians and others have taught us is actions have a very short shelf life and a FED RATE HIKE would have dissipated as the global vacation season gets underway. Recent jawboning by Larry Kudlow, President Trump and Treasury Secretary Steven Mnuchin should be treated as oral agreements (not worth the paper they are written upon).
Chairman Powell, you should have stood firm in face of the taunts from the cyberspace bully and raised rates. Had the Fed raised interest rates and spurred a significant rally in the dollar, we would have had to listen to White House jawbone the greenback lower to counteract the overactive FED as it was undoing all of Trump and company’s good work.
It is time for the Fed chairman to draw back the curtain that protects the Great Oz from challenges to flawed fiscal policy. Courage can only be found within yourself for as the LION made us aware. WHAT MAKES A KING OUT OF A SLAVE? COURAGE. Until the FED exercises COURAGE it will be a slave to markets and/or political bullies.
On Thursday we get Mark Carney and the Bank of England. This will be an issue of a BRAIN as the BOE has to confront its erroneous forecasts about the economic outcomes of BREXIT.