Fed Kills The Bear…For Now

It’s 4:40 a.m. on Friday morning and I am sitting in the airport waiting for my flight to Vancouver, B.C.One thing about being at the airport this early…there is no line…for anything. Anyway, I am on my way to present at the annual MoneyTalk Conference where I am honored to be the keynote speaker this year. 

But here is my problem. I had to prepare my presentation and send it to my hosts a couple of weeks ago. The topic was simple enough…how to navigate a market that has changed trend.”

The problem, for my presentation on Saturday anyway, is that narrative may have been postponed. Which is what I want to discuss with you this week – “How the Fed sent the bears back into hibernation…for now.” 

(When I get back next week I will post the entire presentation deck for you.)

First, let’s start with what happened last week as we discussed in a post for our RIA PRO subscribers:

“The statement and press conference following the January 30th Federal Reserve policy meeting was, with little doubt, a further pivot to a dovish stance. The statement below is from the prior December meeting and marked up in red to highlight changes in the current January 30th statement. The big clue about future interest rate policy is in the following addition:‘the Fed will be patient as it determines what future adjustments to the target range…’ ‘Patient’ tells us that the Fed’s plans to raise rates two or three times in 2019 are now on hold. It also leads the reader to believe the next move could just as easily be a reduction in rates.”

“The next important takeaway came in regards to the Feds balance sheet. In the press conference Jerome Powell, as he has done recently, alluded to the idea that QT is not on ‘autopilot’ anymore. In other words, it is likely the Fed will not continue to reduce the pace at which they are shrinking their balance sheet without considering the economy and financial markets. We stress the word ‘autopilot’ because that was how Jerome Powell to described the pace of balance sheet reductions at the December 19, 2018 FOMC meeting press conference. The ensuing market mayhem in the days following the press conference appears to have rattled the Fed into modifying that take quite substantially. In fact, they have done a 180-degree reversal in only six weeks.”

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