Manna

Jerome Powell got the stock rally he was(n't) after on Thursday. However things ultimately turn out -- which is to say, wherever US shares closed on Thursday or Friday or next Tuesday -- the fact that the S&P was up ~2% 24 hours on from Powell's press conference and the Nasdaq 100 nearly 3%, was a testament to the all-too-familiar criticism that a Fed which gives the market an inch is a Fed which should expect to cede a mile. As regular readers will readily attest, I was a vocal advocate f

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12 thoughts on “Manna

  1. Agree. Powell was too nonchalant about the 100bps for 2024. Sometimes I wonder if he knows what he messing with (i.e., markets), but then I recall the end of 2018, Aug (or so) 2019, 2021-22. He knows. I guess he forgets.
    H put it well in a different piece when he said Powell made an “unforced error” by allowing market to bank on 100bps of easing before 2025. Powell needlessly risked losing control of the markets and rekindling inflation, along w/ a number of other problems. Japanese yen-USD and energy worth watching for signs of market/economy getting ill. Powell is a good-hearted person. All he had to do was head for the sidelines until 2025. What was he thinking?

    1. Suppose Powell is more concerned about employment than he lets on? Then he might worry less about the inflationary effect of bullish markets, and might quietly welcome whatever trickle-down there may be from asset prices to Main St.

    2. “Powell is a good-hearted person”

      I agree with this. No sarcasm. He’s a good dude. He really is. Which is high praise coming from me, because I harbor a dour view of humanity.

      1. Hopefully, a top-tier historian writes a narrative about Powell that captures well his heartfelt approach to overcoming (or trying to overcome…) many political and economic challenges. The job has worn him down but he can look ahead to a Fed-free future soon. He did the country a favor by staying in the job despite Trump’s attacks.

  2. Trump in February: “I think [Powell’s] political. I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates.”
    WSJ in April: “Trump Allies Draw Up Plans to Blunt Fed’s Independence”
    Trump in August: “I feel the president should have at least say in [setting interest rates], yeah, I feel that strongly,”

    Fed in September: BOOM, there’s 50, bigmouth — and more where that came from, if needed!

    “I don’t know, Leslie. I think we might be talking about a .22 caliber mind in a 357 Magnum world.”
    You were hot, Jay. You were hot.

  3. Repeating a possibility I posted on The Fate of the World- a melt up post 50 point cut into the gamma unclench of Friday’s options expiry could open up a wider trading range.

    And my gut feeling is there is a higher than normal chance of market volatility coming up due to seasonality and the election. Geopolitically, there are many players who may do something to affect the election. I’ll be happy if none of that happens, But if tomorrow morning is up, I’m likely to purchase some downside protection speculatively.

  4. Perhaps the seasonal was delayed a month or so. Contested election, geopolitical events, economy moving along (jobs holding up) and no cut in November can take 10% off the market quickly. Not a prediction which most of us are crap at, anyway. To, H’s point, the assets will be fine…until they’re not.

  5. To your last sentence- I think Powell will pretend he doesn’t see the weakness in the labor market just like he pretended not to see the inflation.
    When it’s impossible to pretend any longer, he’ll admit too many people are unemployed. That will probably take at least a couple years to play out.

      1. To the extent they are, I don’t understand why this Fed is so hell-bent on cutting at that November meeting. The ECB cut, then skipped. The BoE cut, then skipped. The Fed looks like it wants to cut, cut, cut and cut some more. It’s not a matter of being in a “hurry” or a “rush” to get down to neutral. They can still “hurry” and “rush” down to neutral by skipping November and cutting 50 again in December (i.e., instead of 25/25). If anybody on the Committee is seriously entertaining the idea of 50 in November and then another 50 in December, that’s just crazy barring a sudden stop for the labor market.

        This “We gotta go again immediately” mindset makes it seem like the jobless rate is about to spike to 5.5% or something. I mean, this shouldn’t even be a discussion in my view: The economy’s fine, the labor market seems still pretty much ok, you just cut 50, so why is the default not to wait until the next SEP meeting? If possible, you go at a quarterly cadence, and line up the cuts with the release of new economic projections. That’s obviously possible here, so why isn’t it the go-to option?

  6. H-Man, not sure 50 and 50 to end the year is crazy. 5.5 became 5 when the 50 landed and take another 100 by year end and we are at 4. Subtract inflation rate 1.86 but to keep the math simple, call it 2 and you now have a real rate of 2%. That may be the juice that is needed to keep this a soft landing rather than a crash and burn. In light of how debt burdened the consumer is with no pricing power, it may be just what the doctor ordered.

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