Assessing Today's Events as Dow Swing 900 Points to New 52-Week Low

The market did not seem to like statements Jerome Powel made following the FOMC announcement.

Head Scratching

Head scratching? Really? No!

Here's a better assessment from Batman.

Shut Up! Shut Up!

Powell was asked about the Fed's balance sheet and quantitative tightening.

We thought carefully about how to normalize policy and came to the view that we would effectively have the balance sheet run off on automatic pilot and use monetary policy, rate policy to adjust to incoming data. I think that has been a good decision. I think that the runoff of the balance sheet has been smooth and has served its purpose and I don't see us changing that. And I do think that we will continue to use monetary policy, which is to say rate policy as the active tool of monetary policy.

Automatic Pilot

Automatic pilot, what a hoot.

Allegedly, the market reacted to Fed Chair Jerome Powell's comments in the Q&A following the FOMC announcement.

The reason I say "allegedly" is that I am not at all convinced the market would have reacted differently no matter what the Fed said.

Dot Thought Thickens

The dot plot always thickens.

The December meeting will show unanimous or near-unanimous opinion that the Fed is doing a brilliant job for the current year.

Conversations on Hikes

Dual Mandates

Real World

In the real world, bubbles eventually matter.

The problem is timing. It is very difficult to predict when things finally matter.

But when bubbles do matter, what the Fed then does or says is "Too Late To Matter."

My assessment: A Fed-Sponsored Economic Bust is Coming no matter what the Fed says or does now.

Mike "Mish" Shedlock

Comments (16)
No. 1-15
shamrock
shamrock

Gold miners got absolutely hammered by the news.

lol
lol

Powell knows other central banks and the PPT got his back,they'll put a floor under the "market" so he can raise rates and pretend to shrink the balance sheet.The problem is to prop up stocks ,bonds,commodities indefinetly will require biblical levels of continued money printing,which is becoming more and more difficult to hide!

Six000mileyear
Six000mileyear

"There are two mandates, but mathematically, the problem is the Fed can control at most one variable at a time. "

Mish, that is a glaring flaw in the FED's mandate based on graduate level control theory course. I would disagree the FED could control interest rates because more than 95% of the time the market makes the yields move and THEN the FED changes rates. Control would preclude yield inversion; however, the yield curve has been observed to invert. If the FED could "control" the interest rate, then the market would no longer be free.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"Mish, that is a glaring flaw in the FED's mandate based on graduate level control theory course. I would disagree the FED could control interest rates because more than 95% of the time the market makes the yields move and THEN the FED changes rates."

The Fed can control the Fed Fund's rate. The "implications" of that decision cannot be controlled.

Alternatively, the Fed can control money supply. If it chooses to control money supply, it cannot control the interest rate, nor anything else.

That is it. Period. Dual mandate is complete asininity.

Mish

CautiousObserver
CautiousObserver

I wish someone had asked Powell how much lag time he thinks there is between when the Fed increases rates and when that shows up in the economic data he says the Fed uses to make decisions. He describes it like no big deal. In reality, new policy might not show up in growth, employment and inflation for 6 months, a year, or longer. Heck, he just stated that the economy took 7 years to respond decisively to ZIRP. I have to wonder if people will look back and say today was the beginning of another policy error.