On Wednesday, Fed chair Jerome Powell raised some eyebrows - and launched some sell programs - when in the middle of a lengthy tirade about how there is no inflation, soaring prices notwithstanding, he admitted that some assets were "frothy", yet paradoxically without acknowledging the Fed's explicit (and dedicated) role in creating and nurturing said market froth. Or, as Rabo's Michael Every put it, "the most surprising thing was Powell daring to use the word “froth” to describe the stock market he himself is boiling."
Fast forward just two days later, when moments ago Dallas Fed's non-voting president (and former Goldman partner), Robert Kaplan, doubled down on the "bad Fed cop" angle and says "we’re now observing excesses and imbalances in markets."
Explaining that he is "very attentive to that and that’s why I do think at the earliest opportunity, I think will be appropriate for us to start talking about adjusting those purchases”, Kaplan said that "we’ve got real excesses in the housing market” which is why he had not changed his view that rates should start to rise in 2022, and that the Fed should start talking about tapering of bond buying soon; most ominously - and an indication of just how much confusion there is at the Fed right now - he said that he expects to see a surge in prices of more than 2.5-2.75% in the coming months.
According to Kaplan, getting less-educated workers back to the workforce and in jobs is a challenge during the recovery. The former Goldman employee also reiterated the upside risk to his 6.5% growth forecast for the US economy and said that while “it’s not yet the speculative situation that we had back in ‘07, ‘08 and ‘09", he said that "it bears watching and keeping a close eye on."
His hawkish comments, which came alongside a report that a UK study has determined that individuals who have had only the first does of the Pfizer COVID-19 vaccine remain at risk against dominant new variants (except in those who have already had COVID-19) spooked markets and promptly put a damper on a modest rally that tried to emerge shortly after the US open.