Source: Macro Tourist
“Remember the Powell of last year? You know, the one that tried to convince us that there ‘could be no macroeconomic stability without financial stability?’ And this Powell was not concerned about financial stability in terms of making sure the stock market never went down, but rather just the opposite. For the first ten months of his stint as Fed Chair, Powell articulated a position of discipline and tried to back away from the idea that Wall Street was dictating monetary policy. Powell repeatedly stressed that rates would be set for the long-run benefit of the economy – not for the desire of the money markets. In fact, even as late as the FOMC meeting on December 19th, 2018 Powell was trying to convince the world that stock market gyrations would not shift his resolve….Funny how things change when Powell is staring down the barrel of a stock market decline that seemed to be spiraling out of control. The late December swoon proved too much for Powell to bear, and since then he has folded like a lawn chair on almost all of his hawkish guidance. Although Powell had abandoned his October 3rd prognostication that the Fed Funds level was a ‘long way from neutral’, as late as January 10th he was still holding firm that the Federal Reserve’s balance sheet rundown (quantitative tightening) was on ‘auto-pilot’….It looked like Powell might hold tough, but Friday the Wall Street Journal published an article that was widely viewed as the first step in the FOMC changing QT policy. “Fed Officials Weigh Earlier-Than-Expected End to Bond Portfolio Runoff”….If Powell had not recently caved to Trump and Wall Street, the market would not be so quick to believe this sort of article. The reason it was taken so bullishly is that lately Powell has been giving the market what it wants….After all, the market believes – once a caver, always a caver.”
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