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Powell Fed Faces ‘Political Event Horizon’ – And Crossing It May Mean No Way Back

It hasn't always been easy being Jerome Powell over the past year.

It hasn't always been easy being Jerome Powell over the past year.
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1 comment on “Powell Fed Faces ‘Political Event Horizon’ – And Crossing It May Mean No Way Back

  1. I believe I read here that one of Powell’s “signatures” was his belief that financial bubbles (tech, housing) were among the greatest threats to the real economy (and not vice-versa). It seems clear that Trump is, as usual, ALL about bubbles and leverage and unsustainability. Whether it is late cycle tax cuts or deficit spending or foreign policy brinksmanship, Powell’s natural inclination seems to be to resist all these things. I believe he relented in December because the market’s tantrum, as you pointed out, started to become self-reinforcing/fulfilling and took on the aspect of a bubble bursting with real world effects. Here, we have a different scenario — the bond market is screaming for cuts, but equities remain near highs. If Powell delivers the cuts, he likely gives steam to a future (or further) equity bubble, and if he resists, he likely sets the stage for an equity tantrum. I believe Powell finds the latter more manageable/tolerable.

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