Powell Put Sends Stocks Soaring

Federalreserve [Public domain], via Wikimedia Commons

Federal Reserve Chair Jerome Powell placed his put in stocks while saying there is none. When he doubled down today on a more dovish approach to the economy, Powell claimed the Fed is not designing interest rates to keep the market climbing. If that is true, recession must be near:

Fed delivers a “double-barrel dovish blast”

The Fed sees recession dead ahead. You have only that choice in how to interpret this because the Fed made a major course correction in late December, which instantly saved the crashing market, and today it announced it fully intends to stay the new course while stating that had nothing to do with the market. After all,

Before this statement, the Fed had said that runoff would continue unless there was a substantial risk of a recession.

MarketWatch

The Fed’s major course change, then, can only be due to seriously deteriorating economic conditions. The course has downshifted from autumn’s expected 3-4 rate increases in 2019 of its targeted Fed-funds rate to zero interest increases, and it shifted its balance-sheet-reduction from auto-pilot at full speed to manual pilot under a carefully watched speed. Today it doubled down on all of that.

If such a face-losing change, of course, is due only to economic data, the Fed has surely put us all on economic watch (sort of like hurricane watch or storm watch). After all, auto-pilot was supposed to be as boring as “watching paint dry” according Janet Yellen when she started us down that path.

The myopic market loved this today, and the Dow leaped instantly up about 150 points to close 435 points up for the day!

Dow yesterday and today. See the Fed put anywhere?

The Fed’s wording was that it will remain “patient” as it makes “adjustments” to its interest targets and abandons autopilot. Most analysts I’ve read assume that means one future hike this year, while some think it means none and others it means two; but all agree it is well short of the four that were priced in last fall before the market plunged into a bear market. So, the market repriced today to the new reality just as its been repricing since this announcement was tested in December.

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