The Fed Soothes the Market Today With More Easy Money Talk

Mish

In Senate testimony, Fed Chairman Jerome Powell reaffirmed the central bank’s commitment to maintaining easy-money policies.

Semiannual Testimony

In semi-annual testimony to the Senate, Jerome Powell Promised Easy-Money Policies Would Stay in Place.

“The economy is a long way from our employment and inflation goals,” Mr. Powell said in testimony to the Senate Banking Committee, a statement he has repeated in recent weeks. The Fed will therefore continue to support the economy with near-zero interest rates and large-scale asset purchases until “substantial further progress has been made,” a standard that Mr. Powell said “is likely to take some time” to achieve.

Noting that asset bubbles triggered recessions in 2001 and 2007-09, Sen. Pat Toomey (R., Pa.), the top Republican on the panel, asked Mr. Powell if he sees a link between elevated asset prices and the Fed’s easy-money policies.

“There’s certainly a link,” Mr. Powell said. “I would say, though, that if you look at what markets are looking at, it’s a reopening economy with vaccination, it’s fiscal stimulus, it’s highly accommodative monetary policy, it’s savings accumulated on people’s balance sheets, it’s expectations of much higher corporate profits…So there are many factors that are contributing.”

S&P 500 15-Minute Chart

Fed Soothes the Market With Easy Money Talk

Nasdaq Index 15-Minute Chart

Nasdaq 100 Index 15-Minute Chart 2021-02-23

For the technically minded, these gap downs and recoveries are more than a bit troubling.

Also, please note the Very Unusual Move in Mortgage Rates vs the 10-Year US Treasury Yield

What happens when promises of more stimulus are not enough?

If the housing and the stock market bubbles break simultaneously, the Fed will have an enormous problem.

Watch junk bond yields. I expect junk bonds to break first. 

Mish

Comments (24)
No. 1-13
Too much BS
Too much BS

Relax Powell to the rescue. https://www.youtube.com/watch?v=RmhITOnAolU&ab_channel=PePPeMusic

Eddie_T
Eddie_T

I’d expect stocks to break first...RE is more sensitive to the fall-out of the stock market crash....i.e. the resulting recessions or depression.

People don’t sell houses to meet margin calls.....the way they sell gold and bitcoin....but housing will not escape a huge deflationary event. They sell houses because they lose their job.

A stock market crash is certainly not out of the question...and liquid assets of all kinds will go down with stocks, especially considering the current level of leverage. It will probably instantly put a top in the housing market....because credit will get harder to come by. jmho.

nzyank
nzyank

"If the housing and the stock market bubbles break simultaneously, the Fed will have an enormous problem"
If this happens it will become someone else's problem, not the Fed. Either congress and/or general public. Fed has and is doing everything they can in their limited toolbox.

bluestone
bluestone

"So there are many factors that are contributing.” and all of the other factors come from the same underlying easy money policies, because there certainly wouldn't be any stimulus otherwise, or extra "savings" when the economy shrunk.

anoop
anoop

Jerome has such a calming voice. I thought it was just me, but looks like the markets also find it soothing.

numike
numike

The American dream is now in Denmark
A conversation with Danish businessman Djaffar Shalchi about why he wants to make rich people like himself pay more in taxes https://the.ink/p/the-american-dream-is-now-in-denmark

Eddie_T
Eddie_T

In ancient Greece, the rich paid more taxes, voluntarily, for status and political advantage.

Yes, Mish, I am reading Daylight Robbery. I made it up to the execution of Charles I before I nodded off. Great book.....and it would make a fine companion piece for Niall Ferguson’s Ascent of Money.

Roger_Ramjet
Roger_Ramjet

Powell and the Fed can talk all they want, and confidently profess that they are in control, after all it is a confidence game. But the reality is that the Fed always follows the bond market, that's really what controls yields.

As a result, that is why I believe that yield curve control will be a reality in the not too distant future, and that over the coming years, the Fed's balance sheet will double, and then double again.

KidHorn
KidHorn

The fed will never normalize rates or stop asset purchases. Maybe they would after a complete collapse of USD and we're all trying to grow food in our backyard to stay alive.

Around here, there's a clear housing bubble. My neighbor just sold their house in a day for $25k over asking. Everything on realtor.com in my zip code goes from available to contingent in a matter of days. I would sell but then I would have to buy. So I would just end up paying a lot of commissions and I never want to rent.

Eddie_T
Eddie_T

Futures expiry in metals today. With the silver bulls foaming at the mouth, I expect gold and silver to get absolutely hammered today. The dollar is firming, barely.

I read this piece on ZH written by one of the WSB guys. One thing does stand out. Lots of silver is being settled in metal rather than the dollar. That does look very bullish. I’m agnostic on the whole "silver squeeze” story.

If gold and silver get pushed down hard and the dollar then decides to roll over, it would look like a buy signal to me. I am watching the 89.4 level to see if the dollar stays above that...It still might be an opportunity to make a quick profit if either metal gets stretched to the downside......but a drop coupled with a clearly weakening dollar would be better, imho.

TCW
TCW

So Mish are you still in the deflation camp or now preparing for inflation?

Eddie_T
Eddie_T

The dollar slipped back below 90 last night...but it will probably bounce today.

As the dollar firms up, gold looks to get taken down some more. I am looking for a likely short term bottom to reload my GLD trade.

Eddie_T
Eddie_T

Reloaded my GLD.


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