Central Banks

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Federal Reserve Chairman Jerome Powell spoke in a moderated roundtable discussion at the American Economics Association meeting in Atlanta with predecessors Janet Yellen and Ben Bernanke in a decidely more dovish rhetoric and risk aware tone.

Powell Yellen Bernanke

Key Quotes 

From Current Chair Powell:

  • With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”
  • Most of the hard data remains solid
  • Today's data was very strong, the data doesn't raise concerns about inflation Monetary policy “was not on a preset course”
  • The central bank is prepared to shift course “significantly” if necessary.
  • We will be prepared to adjust policy quickly and flexibility and to use all our tools to support the economy should that be appropriate
  • Yesterday's ISM manufacturing report was well below expectations but it had been at extremely high levels and is something worth keeping an eye on.
  • China's consumers appears to be slowing down China should continue to expand at a 'sill solid' pace
  • Fed listening carefully to market's risk concerns
  • We will be prepared to adjust policy quickly and flexibly should that be needed
  • Meetings between Fed chairs and Presidents 'do happen'
  • Says he would not resign if asked to by the President
  • Best we can do is be as transparent as possible
  • We need the concept of the natural rate of unemployment

From Former Chair Bernanke:

  • It's likely the economy will slow in 2019 and more in 2020, that's not news
  • Financial conditions were 'if anything' a little bit ebullient in 2017 

From Former Chair Yellen:

  • “Obviously the president has a right to comment on the Fed, but I would worry that if it continues, or intensifies, that it could undermine confidence in the Fed,” 

The Reaction Today

  • EURUSD 1.1351 to 1.1414
  • AUDUSD .7057 to .7117
  • USDJPY 108.26 to 108.55
  • SPX 500 2694 to 2528

 Whilst this is being touted in the press as a huge U Turn and panic reaction to falling markets, is it really?

This is what Powell had to say heading into the G-20 a few months ago:

"While FOMC participants' projections are based on our best assessments of the outlook, there is no preset policy path. We will be paying very close attention to what incoming economic and financial data are telling us."

"We therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy. Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth."

"Our gradual pace of raising interest rates has been an exercise in balancing risks."

"Our path of gradual increases has been designed to balance these two risks."

"We therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy."

"We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized

The Reaction Then

  • EURUSD 1.1282 to 1.1362
  • AUDUSD .7240 to .7320
  • USDJPY 114 to 113.50
  • SPX 500 2694 to 2722

The immediate thought is the Federal Reserve is aware of market risks and not blindly content with the current rising interest rates path withnear is good enough. They see inflation is in check and he not worried about trade wars 'overly'.

However that said what ahs changed with the Fed? There is little doubt everything about this Fed, and has been for a long time is about appeasing the stockmarket and it's particpants (read banks) not main street. This is a man I should remind that didn't blink when his tenure began with one of the fastest 10 percent falls in US stockmarkets in history. including the biggest Dow Jones point loss ever. Those days appear to have changed with the lengthy trade war, President Trump' criticism of Chairman Powell and the crashing oil price.

Is the Fed Put back on"

There is little doubt that the last successive Fed chairs has lulled markets into complacency and a concept of no risk. Former Fed chair Janet Yellen had  even said the stockmarkets will not crash in her lifetime at one point.. The idea of a Fed “put” option under the three prior Fed leaders; Janet Yellen, Ben Bernanke and Alan Greenspan has been a feature of the bull market run since 2009. The US markets have reached a new level of silliness, no risk appreciation of trade wars, conflicts in Europe, political breakdowns in the U.K.. Germany and France. The nonsense that is Turkey politics. A new regime in Mexico, laughable NAFTA talks. The threat of Iran. What direction does China go? We could go on but what's it matter, market players will tell you it doesn't and its different this time.

Source: YouTube, TradersCommunity

From The TradersCommunity Research Desk

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