Wall Street Teases You About A Rate Pause But What’s Really Short Term Bullish Will Shock You

If you missed it, here’s Part 1 of this report. I was going to use the same headline and just call this part 2, but as I was doing my usual first rewrite to tweak the structure, something new dawned on me. I had to largely rewrite the post. And that called for a new headline.

While the mainstream media focuses on the interest rate issue, if you’ve been reading Suremoney for a while, you know the rates thing is a red herring, anyway. The only thing that really matters is the bloodletting, as the “normalization” of the Fed’s balance sheet currently drains $50 billion per month from the system. Well, that and the fact that the Treasury is sopping at least $100 billion in cash out of the market every month.

In its 25 paragraph report about the FOMC December meeting minutes, the Wall Street Journal was silent on this until the 22nd paragraph. It essentially buried what should have been the lead of the report, instead giving the issue just a few offhand comments.

Here’s their comment. The added emphasis is mine.

“Separately, the minutes showed the Fed made more progress but reached no final decisions around how and when it will stop shrinking its $4.1 trillion portfolio of bonds and other assets. The minutes indicate officials aren’t looking to slow the winddown as part of their policy stance, a change advocated in recent weeks by some prominent investors and Mr. Trump.”

In fact, I saw no discussion at all about slowing the rate of draining as I read through the minutes. Only in recent days have numerous Fedheads, including head honcho Powell, begun discussing that possibility. These remarks, while clearly scripted, have come up since the December FOMC meeting.

It’s a new wrinkle that we’ll definitely need to pay attention to because it establishes a bit of a timeline. But I’m not worried about it yet, in terms of changing my outlook. Normally it takes 6 to 9 months after the Fed starts trial balloons for the idea to make its way into policy. And each time the market rallies like this, that takes the pressure off the Fed to do anything. Rallies like this one just push any Fed policy counteraction further over the horizon.  

But there’s one other thing that is bullish in the short run, and you’ll never believe what it is!

While Wall Street Tries To Get You Excited About A Rate Pause, Here’s What Really Matters –  Part 1

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.

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