Back on October 12, 2018, I wrote a blog post titled, “Trump’s Fed Attack – Why.” This was right after Fed Chairman Powell told PBS NewsHour anchor Judy Woodruff that the Fed Funds rate was “a long way from neutral.”
You may better remember the response from the President when he said, “The Fed is going loco and there’s no reason for them to [raise the fed funds rate]. I’m not happy about it.”
As a cognizant investor and deeply immersed reader of my missives, you are aware of the market’s response since that statement: volatility, risk aversion and a swift sell-off into correction territory.
In that October 12th blog I wrote:
If Powell does not walk back his statement, or at least clarify it, the interpretation that markets/investors are making is that so long as GDP growth fits into the Federal Open Market Committee’s (FOMC) definition of “positive” (somewhere between 2-3% GDP growth) the Fed will continue to raise rates…and possibly too much.
Today, right after Powell’s remarks hit the news, equities rallied with the Dow jumping 400 points. The market seemed to love his distinct, tonal shift on his characterization of the neutral rate when he stated, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy–that is, neither speeding up nor slowing down growth.”
That’s what I call walking it back.
There are a lot of things going on in the news these days, but I think it’s all noise…except for the Fed. Overtightening by the Fed is the primary risk variable to equity market growth and any increased probability of a recession.
Powell’s comments today provide some welcome relief.
Keep looking forward,
We remain at MONCON 5 – the lowest level of recession concern. Please see this post for a more complete explanation, and call with any questions.
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