Global Doves Expire: Fed Pause Fizzles (US Retail Sales)

Before the stock market’s slide beginning in early October, for most people they heard the economy was booming, the labor market was unbelievably good, an inflationary breakout just over the horizon. Jay Powell did as much as anyone to foster this belief, chief caretaker to the narrative. He and his fellow central bankers couldn’t use the word “strong” enough.

After the market slide through Christmas Eve, everything had changed. No inflation (“muted”) on top of far more uncertain economic circumstances. Suddenly, even in the mainstream financial press, people were asking more uncomfortable questions. What if?

Powell and the rest of his comrades around the world sprang into action – somewhat. After stubbornly clinging to “strong” through all of December, policymakers would start out 2019 in a conciliatory fashion. Globally, the policy bias had shifted even if very little was done (outside of China).

The narrative which came out of that transition was how the Fed broke the economy. Spurred by boisterous disapproval from the White House, repeatedly calling for rate cuts, blame Jay Powell for disrupting the boom. Though the federal funds upper bound was no more than 2.50%, this coupled with QT (balance sheet runoff leading to lower levels of bank reserves) was what pushed everything off track.

Thus, if the Fed broke it the Fed can fix it. Amplifying the message, President Trump tweeted for an immediate 100 bps cut to the federal funds communication at the last FOMC meeting last month. The stock market bought it – literally. Markets are up because “dovishness” is supposed to assure this weakness never gets farther than “transitory.”

We now have economic data coming in across the world for the month of April 2019. Nope. No signs of a dovish savior. If it doesn’t seem like 250 bps fed funds would ever have been enough to derail a boom, that’s because it wasn’t.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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