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.
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:
And here’s an annotated two-day:
“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.