At a forum hosted by the American Economic Association in Atlanta last Friday, FED Chairman Powell was a "good boy" and did exactly what Wall St demanded.
He stuck to a well written script of carefully selected words, focusing time and time again on a few in particular, but most notably the word "patient".
The context that this word was used in, was in reference to raising interest rates.
As we have noted in previous articles, the hawkish approach adopted by FED Chairman Powell was ill received by the markets and President Trump, the latter of which has been an open feud with the FED.
This insistence on raising interest rates has caused the markets to gyrate wildly, causing sporadic, sharp dips lower in the broad stock market. This struck deep fear into investors, as they began to worry that the end of the "easy money" era was over.
Like his predecessor, Janet Yellen, who also carefully chose to the word "patient". Powell intentionally selected this word, as he knew it would signal to the markets, that also like Yellen, he was willing to put on the velvet gloves when it came to handling the markets.
FED Chairman Powell stated the following;
“We’re listening carefully with – sensitivity to the message that the markets are sending and we’ll be taking those downside risks into account as we make policy going forward.”
Powell then went on, as he attempted to deflect the blame that Wall St and President Trump had placed on him for the recent market corrections;
These comments immediately caused a sharp rise in the market, as stocks rallied following this new found approach from the FED Chairman, as it gave the market exactly what it wanted, or rather demanded.
Obviously, Wall St could already smell the blood in the water before Powell even took to the stage, as even before his comments were made, a rally had begun, signalling that at least a few key players anticipated what was to come.
In addition to this new dovish approach, Powell's carefully scripted speech also removed the word "autopilot", a word that was previously uttered by himself and other members of the FED, and of which did not sit well with market participants.
For now, what this means is that business can and will resume as usual. Expect loose monetary policy for now and into the foreseeable future.
FED Chairman Powell has given into the pressures of the market and has given up hope of attempting to regulate rates and the flow of easy money.
This can only be summed up as a "win" for Wall St, but at what cost to the long term health of the economy as a whole?
The FED has completely and utterly capitulated to the market, prolonging the inevitable hangover that is yet to come.
For now, party on.
- As first seen on the Sprott Money Blog
