It is clear to me the Federal Reserve was intent on raising rates until something broke, and that last week enough things “broke” that they finally blinked.What broke? Muir mentioned a number of possible triggers. First, there is the dire picture of global asset returns this year.
The Federal Reserve had previously been plugging their ears and telling the global financial community nah-nah-nah-we-can’t-hear-you-we’re-going-to-keep-raising-come-hell-or-high-water, but the economic and financial market weakness that was previously confined to the rest of the world, has finally come to America. The Federal Reserve is now very close to being on hold for the indefinite future. Sure, they will probably raise once more this December, but it’s most likely a one-and-done. Or at very least, much more a one-and-we-will-see.Does this mean the Powell Put is coming into play?
What does this mean for the market? Tons. Whereas before investors were hiding in American stocks and shooting every other asset class, it’s probably time to do the opposite. Buy emerging markets. Sell U.S. dollars. Play for a steepener in the American yield curve. Buy commodities.
Now maybe it’s too early. Maybe there is more pain to come before the Fed truly panics. That could be. We will have to watch the Fed carefully for clues.