Yesterday, Fed Chair Powell gave a press conference to update the world on the Fed’s thoughts regarding monetary policy. I have been a critic of Chairman Powell’s ability to communicate and, more specifically, his phrasing of things as it relates to the market. I will never forget his careless comments in late 2018, which led to one of the worst 4th quarters in market history and the worst Christmas Eve trading day ever!
Nevertheless, I think he did a good job yesterday. He calmed the market’s anxiety regarding the potential for interest rate hikes by reassuring investors that the Fed would not flip from an easy policy stance to a tight one.
However, I cannot for the life of me understand why any market participant feels that the Fed would move towards instituting any policy that would choke off the liquidity from the markets. It seems completely clear to me that our debt-based global economy needs stable, if not rising, asset prices in order to function. If the Fed were to begin a process of raising interest rates, then asset prices would be sure to fall, hard. This, of course, is exactly what the Fed will do anything to avoid.
With this as a backdrop, I expect to see easy monetary policies for the foreseeable future, even if that means some inflation will be brought into the system. The Fed would welcome some inflation showing up in our CPI numbers, as opposed to seeing asset prices fall significantly. This bias towards easy money is something that I think will continue to provide fuel for the markets.