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.

killben
killben

Given that the cry babies at Wall Street are piling immense pressure on the Fed even though the market is down only about 13.5% from its peak, the pressure on Powell when this market really breaks and gets going on the downside is going to be unimaginable. That this is because the Fed had popped its money-spewing teats into the Wall Street's mouth whenever it threw a fit over the last decade, will as usual escape the Fed. Looks to me we ain't seen anything yet!

gio1
gio1

Jim Grant on CNBC y day gave a very interesting and correct comment. Mentioned austeian economics.

gio1
gio1

That is exactly what another great mind , Jim Grant said yesterday. Austrian econonics redux

Ted R
Ted R

All signs point to continued deflation no matter how hard the Fed has tried to inflate the general economy. The result of Federal Reserve intervention are these terrible bubbles that seem to be starting to burst.

KidHorn
KidHorn

I thought the market would start to tank sometime in H2 this year. The main reason is the gov't is facing an enormous budget deficit next year, while the FED is raising rates and planning to shrink their balance sheet. How is the gov't going to be funded next year? And things are worse now that China won't likely be buying T-Bills.

RonJ
RonJ

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

If anything, it is a broken clock mandate, which is right twice a day by default. The FED can eventually attain full employment or 2% inflation, but it can't maintain either one. Cycles are not stationary.

jackn303
jackn303

The FED should be dissolved!!

Deter_Naturalist
Deter_Naturalist

C'mon, folks. Booms and busts preceded the establishment of the FED. People talk like the Fed was all that mattered in creating the boom-bust cycle of the last few decades.

To me it's self-evident that a deeper explanation is required. People herd! We exist almost entirely in a fog of ignorance about all things (the quantity of which is infinite) so we tend to simply adopt the views of those we encounter. This is why charts of prices look like wave forms, they reflect the aggregate flow of beliefs (which inspire actions) as they wax and wane in human social behavior.

Everything we see that attributes cause and effect is nothing but post hoc logical fallacy. Oil is up, so that's why stocks are up...until the next day when oil is down but stocks are up, so another rationalization is cited for "why." It's all BS. There is no why.

We had a bull market for trust and optimism that last "bottomed" in the 1970's. Since then all markets largely rallied (not in perfect harmony) due to rising trust and optimism. They fueled booms in one asset market after another, but The Mother of Them All was the bond market, where optimism caused an insatiable demand for the IOU's of others, so rising prices for bonds caused an OCEAN of them to be issued.

The Fed was like a clown who jumped in front of the marching band and began waving his arms like he's the one directing the parade route. The parade was there before the clown joined it, and the clown does not direct where the band marches.

Sechel
Sechel

is the market responding to the fed or dysfunctional government?

Cecil1
Cecil1

Reality is that the Nasdaq and DOW are down less than 5% for the year.

Its really not THAT big a deal yet. People are exaggerating these moves.

YOu want downside moves, look at China.