Morning all.
The FOMC release last night initially lead to a rally in stock and a spike in bond yield, the 10 year recovery a little bit of what had been lost through the morning, but ultimately the tone changed and Powell’s performance left a lot to be desired.
The FED have really lost the plot through this pandemic and while stocks had been happy to rally this week, you can see from this chart that the 10 year has been giving up it’s risk-on powered progress all week, reflecting concerns I had expected the equity markets to also display.
Stocks just seem to be on another planet though with no price too expensive for any stock, momentum buying just powering everything higher, even bankrupt companies!
This is a link to J. Powell’s opening statement: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20200610.pdf
As is normal, the markets like talk of free money for longer and this was encapsulated with:
What the June SEP shows is a general expectation of an economic recovery beginning in the second
half of this year and lasting over the next couple of years, supported by interest rates that remain
at their current level near zero.
The issue with this dovish statement is that it contradicts the White House view of a ‘rocketship’ recovery and the picture painted by the record breaking May NFP report.
Powell also spoke about falling inflation while completely ignoring the real inflation they are causing by the huge amount of money printing and balance sheet expansion they are undertaking. They don’t want to being attention to what this really means in terms of wealth inequality accelerating and that rates should not be held so low with such inflation.
It’s a scary situation and there’s are huge risks but markets are happy to keep pumping themselves higher on the promise of unlimited QE, near-zero rates for years to come and a statement from the FED that they don’t care if asset prices are too high!
If inflation starts to show in the data then the real problems start. With $26 trillion in debt, how exactly do you allow interest rates to rise in order to suppress inflationary pressure?
