Does Wall Street Now Have A Powell Put?

First let’s explain exactly what a “Fed Put” is. A Fed put is defined as: The confidence of Wall Street that the Fed will lower interest rates and print money to support the market until economic strength will be strong enough to carry stocks higher. The term “Put” is ascribed to this because a put option is basically a contract that offers a buyer protection from falling asset prices. It was first coined under the Chairmanship of Alan Greenspan when he lowered interest rates and printed money to rescue Wall Street from its 22% Black Monday crash back in 1987. The practice of bailing out stocks was institutionalized by Ben Bernanke; and then became a bonafide tradition perpetuated by Janet Yellen.

During the tenure of Ben Bernanke, the Fed Put took on new dimensions never before conceived. Such as, a zero interest rate policy and the massive monetization of long-term Treasuries and Mortgage-backed Securities. The purpose of this strategy was to put a floor under asset prices and encourage the private sector to stop deleveraging. It was a total success. Wall Street's mantra under Janet Yellen went something like this: The economy will soon improve and thus boost share prices. Or, if it does not, the Fed will keep interest rates at zero percent and force money down the throat of banks in the form of QE. With this, they will feel compelled to push a flood of new capital towards real estate, equities and bonds, regardless of the underlying economic conditions.

And now, Wall Street believes that investors have received the latest iteration of a central-bank Put following Fed Chair Jerome Powell’s recent comments. Mr. Powell gave a speech on November 28 at the Economic Club of New York, in which the Main Stream Financial Media was quick to assess that the central bank is now on hold with its tightening of monetary policy.

That conclusion could not be more in error. It is what Wall Street wanted to hear, but that is not at all what came out of Jerome Powell’s mouth. The following was his direct quote: “Interest rates are still low by historical standards and they remain just below the range of estimates of that level that would be neutral for the economy.”

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, more

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