Were you watching CNBC yesterday? If you were you know all about the Fed meeting minutes. They were all over the online financial media too. The universal take was that the Fed has turned dovish, and that it will pause raising rates. And everyone agreed that that’s bullish!
But is it?
Previously, Chairman Powell had held firm to the idea that the Fed would only loosen policy if the economy materially weakened. He had said that the Fed wasn’t concerned about possible stock market declines, but would be motivated to ease policy only if the economy contracted as a result, particularly if housing was the cause.
But the stock market selloff in the fourth quarter combined with relentless pressure from the White House spooked him and his cohorts on the FOMC. Apparently Chairman Powell is no Paul Volcker and no Chairman Pow! Faced with a challenge from the market, he turned into Mr. Softee. Wall Street concluded that, yes Virginia, there really is a Powell put.
The Wall Street Journal led the story with the headline and subhead, Fed Is Unlikely to Raise Rates in Next Months, Minutes Show – Recent market volatility and signs of slowing global growth made ‘extent and timing of further policy firming less clear’
Reporter Nick Timaraos explained, “Federal Reserve officials signaled they are unlikely to raise interest rates for at least a few months while they assess the impact of recent market volatility on the U.S. economy.” He went on to say that stocks sold off because “Powell presented a confident outlook in a postmeeting press conference that conveyed to some investors a greater bias toward rate increases than they anticipated.”
And here I thought that the markets were weak because they were starved for liquidity! Indeed they were. But naturally there’s more to the story that Wall Street isn’t telling you, but I will. Click here to find out what it’s really all about.