Fed’s pivot is completed

Posted By Darren Winters on Aug 15, 2019


Fed’s pivot is completed

The Fed’s pivot is completed. Last month’s Fed Chair Powell’s full circle concerning monetary policy was confirmed with a 25bps rate cut for the first time in 11 years. The Fed fund rate is now 2.1% from 2.35%.

The Fed’s pivot is completed and both global bond yields and stocks have plummeted

Moreover, the Fed has ended the normalization of its balance sheet two months ahead of schedule.

But with more than 4 trillion dollars of assets remaining on the Fed’s balance sheet, the situation can hardly be described as normal.

The Fed’s pivot is completed from normalization to easing in the best economy ever

Fed's pivot is completed

How then did the Fed Chair Powell justify the 25bps rate cut?

The Fed praised the US economy but blamed the result of the world for the rate cut.

In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent” said Fed Chair Powell in July’s fomc rate decision meeting.

From expectations of 100bps of rate-hikes priced-in in Nov 2018, the Fed’s pivot is completed with markets now pricing in 100bps of rate-cuts.

The fact that the Fed’s pivot is completed suggests that maybe monetary policy isn’t politically independent from the President’s influences after all. US President Trump has long campaigned for a cheap money Fed and has broken with the tradition of criticizing the Fed for raising rates in December 2018, which triggered a stock market meltdown.

“The only problem our economy has is the Fed. They don’t have a feel for the market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!” Tweeted the President Trump.

So the Fed’s pivot is completed with CNBC’s Steve Liesman giving his logic for the Fed’s flip flop policy.

If The Fed gets this wrong, I think that they think if they make a mistake here, The Fed could be gone” said Liesman.

Liesman suggested that Fed chair Powell will do whatever it takes to stay in Trump’s good graces. Why?

“Think about what happens when a person gets up at a rally and starts railing against the Federal Reserve, and starts to create what could lead to Congressional pressure on the Fed, then you could imagine that there could be support for a different system”.

“I think they think there’s a lot of political downside risk to getting this wrong”.

So the Fed’s great pivot is completed thanks to political arm twisting?

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