Source: Maulden Economics

“Following Fed policy has been whiplash-inducing over the last year. It was just two months ago that Jerome Powell set off a market panic by suggesting the FOMC would do what it thinks is right and let asset prices go where they may. They were promising at least two if not three more rate hikes in 2019. The stock market fell out of bed. Fast-forward to now and it seems the market won and got the ‘Powell Put’ it wanted. The Fed has given up its tightening dreams and might even loosen policy. It is even (gasp!) losing its fear of inflation. Nassim Taleb in his book Antifragile argues that preventing small ‘crises’ from happening on a regular basis eventually causes a very large crisis. It’s analogous to not allowing small forest fires to clear out undergrowth. Eventually you get one very large fire which is far more destructive. The Fed assuming a ‘third mandate’ to protect asset prices is similarly dangerous….Powell is now bent on pleasing investors, the exact opposite of the impression he so carefully gave last December. Why the change? My best guess is Powell simply got cold feet. He is worried about recession on his watch and wants to prevent it if he can, or at least make the Fed look less responsible for it….Right now, investors seem happy to have the Fed back on their side. I think we may regret having that wish granted.”

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