An Interesting Twist from the Fed—-2/20/2019

Almost all the volatility in the 4th quarter was caused by the Fed Chairman and his clumsy language. And some of those comments focused on the “autopilot” program regarding the Fed’s balance sheet normalization and how the Fed had no intention of stopping that program.

Well, today the Fed said they were going stop the program later this year!!! https://www.cnbc.com/2019/02/20/the-fed-just-released-minutes-from-its-market-moving-meeting.html

What in the world is going on?

First, the Fed rattles the markets saying they aren’t going to stop this program under any circumstances. And then after the market rallies hard to the upside, they say they are going to stop the program.

I see two possible reasons for this change of heart…

1) the Fed has become totally beholden to asset prices and this move helps ensure prices will move higher (note: this is a total 180 degree turn from Fed Chair Powell’s comments late last year)

2) the economy is much worse than market participants realize and this move will help bolster the economy as it slows.

Not sure which one it is, but it is one of the most interesting moves I’ve seen in the markets for quite some time.