Hawkish Fed Narrative Slowly Changing – Ep. 384

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Fed Responsible for Most Recent Move Up

I think what’s really responsible for this most recent move up is the Fed comments.  Now maybe Trump can take credit for those, maybe President Trump was able to get Jerome Powell’s mind right after all, when it comes to rate hikes, although, if you look at the coverage from Jackson Hole, most people think that Powell stood strong and was resisting the calls from Trump to go easy on rate hikes and he was standing by the Fed’s commitment to raising rates.  But that was not really what was said. Not just by Powell, but by other Fed officials who were there who were giving interviews from Jackson Hole.

2% Today Is Not the Same Thing as 2% in the 1990’s

To me it was clear, and I mentioned this on my previous podcast about the Fed being willing to let the inflation genie out of the bottle, that the Fed is basically back-tracking on rate hikes that the markets may have anticipated for 2019, by talking about how interest rates are closer to normal now.  That 2% today is not the same thing as 2% in the 1990’s, not wanting to invert the yield curve, waiting for the whites of inflation’s eyes before they actually come out blasting by doing everything that it takes.

Pound of Cure Beats an Ounce of Prevention

I think that the Fed has basically said we are going to sit back, we’re not going to be pre-emptive on inflation fighting, we don’t think inflation is going to break out, but if we’re wrong, then we’ll do whatever it takes. Basically the Fed’s new attitude is, “Why take an ounce of prevention when you can always use a pound of cure?” Because when it comes to inflation, that ounce of prevention, given how frail the economy actually is and what a big bubble we have, that ounce of prevention could be lethal so let’s just forget about that.  Somehow we’re going to be able to slam the economy with a pound of cure, we’re going to be able to get aggressive on fighting inflation if for some reason it ends up being much worse than we thought.