Fed Chair Proves His Ignorance—12/19/2018

The Fed raised rates today, as expected, and had a slightly more dovish tone regarding their ideas on future interest rates hikes. However during Fed Chair Powell’s press conference, he proved his ignorance about the market’s main concern; the reduction of the Fed’s balance sheet.

The Fed is reducing it’s balance sheet by $50 billion per month. No one is discussing this, but I believe it is the main reason for the market’s downward trajectory. This reduction is a de facto tightening of monetary conditions and is slowing the economy down. This, combined with the Fed raising rates, is a double whammy for slowing the economy.

As I watch the Fed Chair speak, every question he answers concerning the reduction of the balance sheet sends the market lower and lower and lower. He is literally clueless about the major impact this is having. He makes comments like, “its going smoothly” or “it has very little impact.” The fact that these answers push the market lower by 100 points a question, tell me otherwise.

He is the most powerful banker in the world. I sincerely hope he comes to grips with the impact the “quantitative tightening” is having on the economy very soon.