There are strange, contradictory utterances emanating from the usual Federal Reserve suspects. We are left to wonder what it all means.
Begin with the big guy himself – not Santa, but Fed Chair Jerome “Jay” Powell. He’s the Mr. Rogers-looking guy trotted out monthly to make a statement, followed up half an hour later by a question-answer session, which ordinarily makes the biggest news.
Powell has positioned himself as a hawk (Fedspeak for someone intent on keeping interest rates high, monetary policy restrictive and generally acting like the guy taking away the punch bowl just when the party was getting started).
Interest rates have been raised from virtually zero to over 5 percent, and mere weeks before last week’s Fed meeting, Powell was talking hawkish about keeping rates high for a longer than expected time frame.
Investment markets have been trading like Powell was fibbing and would blink. The bet is Powell and his cohorts would cut rates early and often, having tamed inflation. Sure, inflation still is running much hotter than the self-identified 2 percent target for an annual rate. But it’s down from 9 percent and, in keeping with the spirit of our times, that’s close enough for government work.
But Powell shocked the investment world and sent stocks, bonds and commodities all racing upward when he indicated the past Wednesday that interest rate cuts were being discussed and might well unfold, many times, in 2024.
The so-called dot plots, the graph showing where Federal Reserve Board members see rates headed, took a marked turn downward with three or more interest rate cuts in the cards. The green lights started flashing in the minds of investors.
Perhaps taken aback by meteoric market rises Wednesday and Thursday last week, a former Fed official was trotted out Friday to pour cold water on it all, saying markets had misunderstood Powell. And so it has gone since then, with many Fed types jawboning markets – unsuccessfully – with talk of continued monetary tightness.
Some deeper thinkers have begun to ponder what exactly Powell and his Fed gang saw to precipitate their rate pivot last week, with easier money all but promised. Sure, they tried to walk that back since, but something changed quite quickly (a few weeks) between firmly targeting 2 percent inflation and vowing to hold the line until that goal was met, to promising rate cuts and 2 percent be damned.
Can they be fearing yet another, larger banking crisis rooted in the dramatic interest rate rise cycle the Fed instituted? Lots of loans need to be rolled over, at much higher rates. Our own Federal government, the world’s biggest borrower, has seen its debt service costs rise geometrically. Credit card borrowers are crying uncle. Would-be home owners are passing on buying with mortgage interest rates tickling 7 percent.
Countries, businesses and individuals cannot borrow themselves into prosperity, but they could maintain that illusion that all was well as long as interest rates were at or near zero. Despite that reality, investment markets are going crazy to the upside and those on the sideline are feeling the need to join the party, acting with their hearts, not minds.
And so we present Jay Powell’s First FOMO, (fear of missing out) to be sung to the tune of The First Noel.
The first FOMO the investors did say
Owed to Fed chief Jay Powell and the things he did say
Those things he did say, they did panic the sheep
And caused them to buy ‘spite being in deep
FOMO. FOMO. FOMO. FOMO
Powell leads us all to fiscal hell
They buy with borrowed funds, unable to pay
Just to be in the game for another day
In the end it all goes bust, that is the truth
But ’til then we party with gin and vermouth
FOMO. FOMO. FOMO. FOMO
How long it can go nobody can tell
As long as it seems that we are doing fine
‘Tis no need to worry ’bout credit lines
But in the end something pops, and the system does fail
Ending with many whimpers, moans and wails
FOMO. FOMO. FOMO. FOMO
We truly are headed to judgment day
Sam Ross Jr's site 