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WASHINGTON. Unexpectedly late Wednesday morning, hawkish Federal Reserve Chairman Jerome Powell signaled a dramatically less aggressive interest rate outlook. Almost instantaneously, another gloomy, relatively bearish trading day blasted off like a rocketship to Mars after this Fed shocker hit the wires.
As we write this column, around 12:30 p.m. ET, the Dow Jones Industrials currently stand at 25,188.68 or thereabouts. The widely followed average of America’s top 30 industrial and tech stocks is current up close to 450 points on the day. If it holds, this gain could approach +2 percent on the day.
The long-suffering, tech-heavy NASDAQ is up similarly. The broader-based S&P 500 is only slightly behind the other two major averages. It feels good. But let’s hope this one can last.
Fed Chair Powell: Actually acknowledging the Fed’s error?
It seems Powell is finally acknowledging that the nation’s rapidly sickening interest rate, investment and jobs climate has finally caught the central bank’s attention. It’s damn well about time.
For month’s we’ve been yelling at the Fed in this column to knock off its paint-by-numbers approach to the US economy. In a recent column, we highlighted CNBC analyst Jim Cramer’s similar concerns. He directed his increasingly frantic pleas toward the Fed to do exactly the same thing we recommended. Namely, cool it with the interest rate hikes. (But we must concede, Cramer can still hype an issue far better than we can.)
Now it seems that the nation’s central bank has realized its draconian approach to “normalizing” interest rates is choking off the buoyant economy President Trump put in place. Against all odds, Trump was succeeding in his all-hands attempt to benefit all Americans, particularly the long-suffering middle class.
But the Fed’s relentless interest rate hikes relentlessly choked off Trump’s high-growth push almost entirely last summer and early fall. We believe that House Republicans paid dearly for this Fed blunder in Election 2018.
Time to address the needs of real Americans. Not the theorists who hide out in The Swamp
The Fed — and official Washington — all need to get out there and talk to real Americans. Academic theories and algorithms aren’t infallible predictors of human behaviors or national economies.
It’s too bad the Fed’s robotic economists didn’t see the light a few months earlier. That might have spared small investors and GM workers the endless agony they’ve been suffering this fall. The Fed’s Cloud-Cuckoo Land high interest rates have driven them back into the gloom and doom of Obamanomics. As GM workers at that company’s huge plant in Lordstown, Ohio how that works. (Fox has the latest on that fast-developing GM jobs bust.)
Powell opines on the meaning of “neutral”
CNBC provides a good synopsis of Powell’s remarks. We provide excerpts below.
“Federal Reserve Chairman Jerome Powell said Wednesday he considers the central bank’s benchmark interest rate to be near a neutral level, an ‘important distinction from remarks he made less than two months ago.
“‘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,’ Powell told the Economic Club of New York in a speech being closely watched in what has become a volatile financial marketplace.”
That’s likely Powell’s way of saying, “We’re still going to hike interest rates in December, like we said. But after that, this game could be one, and done.
More belated wisdom from a newly enlightened Chairman Powell
Back to CNBC.
“The chairman’s observation on rates in early October helped set off a rough period on Wall Street, after he said the Fed was “a long way” from neutral. Major averages dipped briefly into a 10 percent correction and worries grew that more rate hikes might meaningfully slow down the strong economic growth of the past two years….
“He made further statements to show that the Federal Open Market Committee, which sets interest rates, does not have a predetermined idea for where rates should be and will be making policy decisions instead on developing economic and financial conditions.
“‘While FOMC participants’ projections are based on our best assessments of the outlook, there is no preset policy path,’ he said. ‘We will be paying very close attention to what incoming economic and financial data are telling us. As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation.’”
Better late than never, Mr. Chairman. But at this point, we’ll take what we can get lest our portfolios get wiped out entirely by Christmas due to the Fed’s inability to see the obvious.
Donald Trump: At least one Republican knows how to jawbone
CNBC notes the increasing pressure President Trump has been putting on his completely out-of-touch Fed Chair, an appointment he probably regrets now more than his choice of Jeff Sessions as his Attorney General. Now, Sessions is gone and Powell seems to have opened his eyes. And no, we’re not yet sick of all the winning.
“It’s not only the markets that are nervous about Fed policy.
“President Donald Trump has stepped up criticism lately about both the central bank and Powell. Trump has gone beyond criticism of the rate hikes and has even objected to the Fed’s balance sheet unwind, in which it is reducing the size of the bond portfolio it accumulated when trying to stimulate the economy.
“Powell did not address the president’s comments, instead focusing on an economy that he said continues to perform well at a growth rate above 3 percent and with inflation contained around the Fed’s 2 percent objective.
‘”There is a great deal to like about this outlook. But we know that things often turn out to be quite different from even the most careful forecasts,’ he said.”
That’s probably the 2018 Understatement of the Year, Mr. Chairman. Maybe you and your colleagues will get out of The Swamp a bit more often in 2019. While you’re on the road, take a look at what your policies are doing to hard-working Americans and small shareholders in this nation’s vast Flyover Country region.
The Fed still worries about indebtedness
Powell continued to warn about individual and corporate indebtedness. Remarks duly noted. But we’d ask him why the Fed chose to choke off a robust job market recovery. And for now, why worry about America’s long pent-up spending spree? It’s been helping put our vanishing middle-class back on the comeback trail.
The mega-wealthy rich – mostly Democrats – recovered much of their wealth within a year or two of the Great Recession’s peak. Meanwhile, the middle and poorer economic classes suffered for eight long years under Barack “The Lightworker” Obama’s redistributionist regime. He claimed to support America’s middle class. But behind his scenes, he did his best to snuff out the small bourgeoisie, just like the good Marxist he always was.
Trump has finally given some hope to the vast majority of the rest of America. Why kill off an economy that’s helping them at least get back to even? It’s going to take more than barely two years to overcome eight years of Obama Hell? After all, who’s paying all those fat government salaries anyway?
Time to stop preventing a big economic win before all small boats have a chance to rise
We’ve been as irritated as hell over what this Fed has done to Trump’s finally robust economy. Hopefully, Jerome Powell, still a fairly new Fed head, has finally learned a little something new on the job. If there’s no real inflation, why cut off an absolutely necessary economic recovery before it’s brought the average American back to parity. What’s “inflationary” about that?
You have to wonder sometimes what’s going inside the heads of most of our Royal Smartpersons in Washington. Just who the hell are they serving, anyway?
We’ll enjoy today’s thus-far positive stock market action. But we’re wary of putting on new positions. On-again, off-again negotiations with the intransigent Chinese may or may not be underway this week. Another bad outcome, forcing President Trump to hike tariffs again could plunge stocks into another nosedive in short order.
As a result, we’ll keep our powder dry. We plan to further trim positions that show little chance of near-term recovery. Finally, we plan to lie low in the weeds until Mr. Market – through a declining VIX and a steading McClellan Oscillator – sound the all-clear signal. That might give us the Santa Claus Rally most small investors desperately need to end the year.
— Headline image: NASA simulated Mars Lab rocket launch. Today’s Wall Street rally may or may not continue.
But at least we can enjoy the fun today. (NASA / U.S. Government image. Public domain.)