It’s only fitting that CNBC should try to rescue the market on Friday.
After all, Scott Wapner’s Monday interview with Jeff Gundlach got us off on the wrong foot in what was already going to be a challenging week.
So, I suppose we can thank the network for giving John Williams a forum to do some emergency damage control following Powell’s bungled press conference and subsequent market rout.
Williams’ interview with Steve Liesman was about as explicit a walk-back as you could possibly ask for under the circumstances. Here’s the Cliffs Notes version:
There’s a ton to like in there if you’re a bull. Specifically, Williams’ contention that “data dependence also means listening to markets”, is effectively a nod to the kind of reflexive relationship/two-way communication loop that helped underpin the low vol. regime and that Powell has worked pretty hard to relegate to the dustbin of history.
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Additionally, the bit about rate hikes “not being a commitment or a promise” is a reiteration of the message from the November minutes about policy not being on a “preset” course. The Fed statement attempted to communicate that same message, but it was lost in translation. Powell further muddied the waters in the press conference, an irony of ironies which speaks to our long-standing contention that paradoxically, “plain English” creates less transparency, not more, because it effectively amounts to revoking the market’s license to co-author the policy script. Williams, by contrast, is making it clear that the market is still at least a “consultant” on policy (if you like).
He’s also obfuscating quite a bit on the data. There are a lot of nods to policy being contingent in his comments and the messaging is very non-committal. In other words, it’s more in line with the kind of indeterminacy that markets interpret as opening the door to dovish relents if the circumstances call for it. Check this out:
Things can change between now and next year. Something like two rate increases would make sense in a really strong economy going forward. But we’re data dependent, we’re going to adjust our views dependent on how the outlook changes.
That’s what you want, right there. Something so opaque as to be largely meaningless. Markets need more of that, and less “plain English.” The reaction was immediate. Here’s futs:
(Bloomberg)
Here’s USDJPY:
(Bloomberg)
And here’s an annotated two-day:
(Bloomberg)
“What we’re going to be doing going into next year is re-assessing our views on the economy, listening to not only markets but everybody that we talk to, looking at all the data and being ready to reassess and re-evaluate our views,” Williams went on to say. Hilariously, that sounds a lot like Trump’s “feel the market” recommendation.
On the balance sheet, John stuck to the script, but again, he was a bit more nuanced about it. To wit:
We did not make a decision to change the balance sheet normalization right now but as I said, we’re going to go into the new year with eyes wide open, willing to read the data, and re-assess the economic outlook and take the right policy decisions.
In any event, this was faded pretty quickly, but the bounce shown in the charts above clearly indicates that Williams’ messaging is the “right” way to do it, while Powell’s approach is “wrong”. Of course that depends on your definition of “right” and “wrong”, but if you’re going by your P/L…
Anyway, judge for yourself:
The respite was short-lived – for now anyway.
(Bloomberg)
That interview (BS) was so out of line and so much part of the business as usual formulation of the last several years as to be offensive.
The whole affair , predictable as it was represented a made for consumption by the anguished public event. It appears to imply a unidirectional market is an entitlement. CNBC at it’s finest….
or it implies that Jerome Powell doesn’t know what he’s doing and the rest of the Fed realizes it. which is what I said on Wednesday.
Or made Powell is the just pull the band-aid off type of guy…this is the reality…it is what it is…deal with it?
Nobody at the Fed knows what they are doing. Seems to me thats how we got where we are. If we want the Fed to play Jesus why don’t we just have congress pass a law that says the Fed must buy $X of SPY to ensure that the market returns annualized gains of 6-10% every year.
And look, don’t mistake my position on this. I’m a long-time critic of these policies. That said, just because you’ve got the right idea (i.e. rolling them back) doesn’t mean you can just say “well, our heart’s in the right place, and that’s all that counts.”
I mean, you have to get the mechanics of this right. If I wanted to go hand out Christmas presents at the cancer ward, that would be a very admirable thing of me to do, but if I drive 145mph and kill six people on the way there, then it’s not clear whether, on balance, I did the right thing.
I am at a loss at what, precisely, you want Powell to do. The rate increases have been communicated in advance by the dots and a hawkish tone in press releases and Fed speeches. The markets still largely ignore them. The drawdown in the Fed’s balance sheet had been communicated years in advance and is going exactly as stated without deviation. The Fed had warned about leveraged loans since 2014. The Federal funds rate is still at a piddling 2.5% considering the United States has full employment, a trillion dollar a year deficit and growing, and a decelerating – but a still strong and growing – economy.
The Fed did not create a liquidity mismatch in leveraged loans mutual funds. The Fed did not create ETFs that distort individual companies’ market performance. The Fed didn’t price Chipotle stock at $730 a share.
If you want the market to have a say in what the Fed does, you know what their policy will be: Perpetual punch bowl. ZIRP and NIRP and QE infinity. Jay Williams said sweet nothings and put on nice lipstick and a pretty wig, and the market cared for about twenty minutes. There is a fundamental disconnect in what the market wants, and what the Fed is statutorily committed to doing.
Depends on who those 6 were…
Maybe the new Fed Chairman can guarantee stock prices next, to mitigate market run(over)s.