It seems we’ve officially entered a period of another “Fed Put” — Fed Chair Jerome Powell’s statements yesterday were widely interpreted to mean that there will be no interest rate hikes this year, or maybe ever again, and that the Fed will stop its “quantitative tightening” in six months or so, leaving a huge and unprecedented balance sheet in place that they apparently no longer feel the need to reduce. And the bond market immediately reacted to tell us that they are now sure the next move in interest rates will be down.
Which is absolutely extraordinary in the face of a decent economy, unemployment rates that are arguably too low, at least in urban areas, and solid if slowing economic growth with some signs of underlying inflation maybe trickling down from asset prices to consumer prices.
That means, so we interpret, that the Federal Reserve’s job is now protecting the stock market and making sure that the S&P 500 doesn’t ever fall again like it did in the fourth quarter of last year. Maybe Federal Reserve Chairmen react to a threat that they’ll be fired the same way the rest of us do, at least subconsciously: by doing whatever our boss wants.
So yes, we should probably be terrified by the notion that a dozen economists at the Fed are trying to prop up the stock market and protect it from some possible weakness as the global economy slows down. But we should also acknowledge that even if we think it’s the wrong thing to do, the Fed is effectively focused on keeping asset prices high, including stocks and real estate… and that extraordinary monetary measures have worked very well for stock market investors for the past decade (we just passed the 10-year anniversary of the market bottom a couple weeks ago), so how on earth can we be so presumptuous as to predict when they will stop working?
The goal, after all, is to grow our savings so we can retire someday or meet other financial demands in the future, often decades into the future… it’s not to be right, or to prove that you’re really smart at forecasting.
Certainly there’s no immediate threat to the US$ that I can see out there on the horizon, not with the Eurozone trying to find new ways to implode and every other major economy trying to ...