Tag: Fed Balance Sheet

Sell In May? Wait For The Powell Put

Posted on by George Yacik

After turning in one of its best January-April performances in more than 20 years, the stock market has suddenly run out of gas in May. We’re nowhere near correction territory – the S&P 500 is down about 2% so far this month after climbing more than 18% in the first four months of the year, and up 22% since the Christmas Eve bottom. Yet the financial press has been filled with “sell in May and go away” stories, citing the Wall Street urban legend – or historical trend, take your pick – that all the money that’s going to be made this year has already been made, so you may as well cash in your winnings and sit out the rest of the year.

The major impetus behind the dip – which doesn’t even meet the definition of a “dip” yet since few people seem to be buying on it – is President Trump’s announcement that he has upped the ante on the trade war with China, raising worries that talks between the two countries will collapse. The recent spate of high-profile IPOs from Lyft, Uber, Pinterest and other companies is also signaling that the stock market may have peaked.

Which raises the question: Is the Powell Put going to come to the stock market’s rescue again in the near future? How deep will a drop in the stock market – assuming it keeps dropping – have to get before the Federal Reserve intervenes and cuts the federal funds rate? Continue reading "Sell In May? Wait For The Powell Put" →

Sweet Surrender

Posted on by George Yacik

Janet Yellen had a pretty easy job when she was the Federal Reserve chair. By keeping interest rates at or near zero for years on end, she never heard any criticism from the president, government officials or the financial markets. Since he became Fed chair a little over a year ago, Jerome Powell has gotten nothing but flack, from President Trump – who was at it again last week – to a whole swarm of people on Wall Street complaining that the Fed was ruining their returns.

Powell got the message several months ago, and last week he handed in his formal surrender. Not only did the Fed leave interest rates alone at its monetary policy meeting, but it indicated that there would likely be no more rate hikes the rest of this year, and maybe next year, too. “It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” Powell said.

The Fed also called a halt to the runoff in its still humungous Treasury securities portfolio. Beginning in May, the Fed will slow to $15 billion – from the current $30 billion -- the monthly redemptions of its Treasury holdings, with the runoff to end in October, meaning its balance sheet will start growing again.

So now Powell and his Fed mates can sit back blissfully and listen to the silence, at least for now. Continue reading "Sweet Surrender" →

Blowin' In The Wind

Posted on by George Yacik

Federal Reserve Chair Jerome Powell last week held sacred the Fed’s “precious” independence, but he apparently forgot how quickly and easily it’s been bullied into altering its monetary policy by both politicians and influential financial markets people.

Until just a couple of months ago, the Fed was determined to “normalize” interest rates and its enormous balance sheet. But after a relative – emphasis on that word – weak patch for the economy and howls of pain from investors during last year’s correction, the Powell Fed was lighting quick to reverse course and put a halt to more rate hikes and portfolio runoff until further notice.

Not surprisingly, the financial press hasn’t given President Trump any credit for this (if credit is the right word in this instance), even though he was clearly the first and loudest basher of tightening Fed policy. Wall Street then jumped on the bandwagon, and voila, we have a new “patient” Fed and an easier monetary policy – and the best January for stocks since the 1980s.
Powell and other members of the Fed have tried to justify their abrupt about-face by noting recent weak – again, relatively speaking – economic data. But January’s robust nonfarm payrolls report – nearly double the consensus forecast – calls that into serious question. Continue reading "Blowin' In The Wind" →

The Fed's 2018 New Year's Resolution

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


In February Jerome Powell takes over as chair of the Federal Reserve, succeeding Janet Yellen. His first order of business should be to get the Fed off its silly, outdated and nonsensical monetary policy target of 2% inflation. He and the other members of the Federal Open Market Committee should at the very least change the inflation target number, or, better yet, find a different measuring stick altogether.

One of the Fed’s mandates, we know, is to keep inflation “stable,” as noted on the Fed’s website, citing the Federal Reserve Act (the other two mandates are achieving maximum employment and moderate long-term interest rates). The current Fed has taken to defining price stability as 2% inflation. Given that the Fed already basically believes it has accomplished the other two objectives, and price inflation has been nothing but rock-solid stable for several years, it’s not clear why it’s still so determined to get inflation up to that 2% target rate, and letting that dictate its monetary policy. If prices are stable at about 1.5%, rather than 2%, doesn’t that meet the mandate, as long as prices are stable?

During the Great Depression of the 1930s the lack of inflation – more accurately, deflation – was a big problem, feeding the downward spiral in the economy for more than ten years. Since then, economists, both on the Fed and elsewhere, have been absolutely terrified of that happening again, even though we haven’t come close to it, not even during the depths of the recent Great Recession. Now that we have seemed to have finally pulled out of the last financial crisis, it’s time to put that deflation obsession to rest. Continue reading "The Fed's 2018 New Year's Resolution" →

Fleeing The Fed Ship

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


William Dudley, the president of the Federal Reserve Bank of New York, has become the latest senior Fed official to announce his retirement. He follows Fed Vice Chair Stanley Fischer, who announced his intention to resign in September, and Daniel Tarullo, the central bank's top financial regulator, who announced his resignation back in February.

Of course, the biggest departure at the Fed was one that wasn’t voluntary, namely President Trump decision not to renominate Janet Yellen for another term as Fed chair, ignoring 40 years of precedent to reappoint a sitting Fed chief. Instead, of course, he nominated Fed governor Jerome Powell to replace her when her four-year term ends in February. Still, Yellen is entitled to finish her 14-year term as a member of the Fed’s Board of Governors, which doesn’t expire for another seven years, on January 31, 2024, although her staying on would also be unprecedented.
All told, there are now three open seats on the seven-member Board of Governors, which of course may rise to four if Yellen elects to leave.

It’s pertinent to ask, then: What are all the departures at the Fed, both voluntary and involuntarily, signaling? Is it simply senior officials graciously moving aside to let a new president get a chance to pick his own people? Or is there something more sinister afoot, namely, do they indicate that a big change in the market is about to occur and they want to get out before the chickens come home to roost? Continue reading "Fleeing The Fed Ship" →