Powell Comments Sends Stock Market Lower – Sees Significant Downside Risks
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” The Fed Chair said in a speech released Wednesday morning.
We played this game back in September. Do you remember?
Fed Chair Powell gave a speech where he hinted that there would be no more stimulus coming and even mentioned an intention to reduce the Fed’s Balance Sheet. This was back when the Fed’s balance sheet was only a couple Trillion Dollars. Now, its near $6T.
Anyway, the stock market never likes to hear that the party is coming to an end. Even when the party started back in 2009 and has been kept going by accomodative Fed policy to placate Presidents and help them get re-elected.
Yes, I’m talking to you, Janet Yellen. And now Jerome Powell has become pretty impressive at his job of trying to keep Trump in office for another four years.
The real test of Fed Chair is whether they can handle a stock market temper tantrum. Powell folded so quickly back in September that it was beyond embarrassing. It is now affectionately known as the Powell Pirouette. And not only did stocks regain their 19% losses, but they got all the way back to All Time Highs.
This brings us to this week. All investors are speculating whether the Fed will take us where no respectable country has gone before – NIRP (Negative Interest Rate Policy).
Today, Powell seems to hint that more could be done but that NIRP (Negative Rate Interest Policy), where a bondholder pays for the privilege of owning a bond and receives no interest, is not coming soon.
The issue is that the Fed Chair (all recent Fed Chairs) have a lousy track record of standing up to the market when they decline sharply. Fed Chairs usually give in. And this one is no different. It remains to be seen.
Stay tuned
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