After tumbling as low as 800 points, the Dow Jones jumped to session highs just after 3:30pm, pulling the S&P with it and blasting the NASDAQ into the green, as a WSJ story quickly made the rounds across trading desks which was centered on the same dovish line first introduced by Powell last week, namely that the Fed is considering whether to signal a new wait-and-see mentality after a hiking rates in December, which could slow down the pace of rate increases next year.
How this is bullish for a market which already prices in less than one rate hike in 2019 is unclear, but it provided enough of an upward momentum boost to send the Dow to -150 and still rising.
So how will the Fed telegraph that its dot plot has been abysmally wrong?
As the WSJ explains, officials still think the broad direction of short-term interest rates will be higher in 2019, according to recent interviews and public statements. But as they push up their benchmark, they are becoming less sure how fast they will need to act or how far they will need to go and want to assess how the economy is holding up under moves they’ve already made.
How they manage this new, less-predictable approach will depend in large part on the performance of the economy and markets in the weeks ahead.
Under the evolving “data dependent” strategy, the Fed could step back from the predictable path of quarterly hikes it’s been on for most of the past two years, raising the possibility it might delay rate increases at some upcoming meetings, according to recent interviews and statements.
The WSJ also adds that under the old pattern, the Fed would raise rates again in March, but officials now don’t know when their next rate move will be after December. The reason for this is largely the market, even though as the WSJ reports, recent turbulence hasn’t much dented the Fed’s view that the U.S. economy is on solid footing, with growth strong and unemployment low.
But inflation has softened in recent months and falling oil prices portend further declines, reducing the Fed’s sense of urgency about raising rates to prevent the economy from overheating
On the other hand, "growth or inflation heats up unexpectedly, the Fed could decide to go further than planned."
Federal Reserve Chairman Jerome Powell compared the Fed’s policy strategy to walking into a living room when the lights suddenly go out.
“What do you do? You slow down and you maybe go a little bit less quickly, and you feel your way more,” he said in a speech last week. “So under uncertainty of this kind, you be careful.”
Of course, if this is correct, and if the Fed is considering a pause after Dec. 19, the word "gradual" would needs to be thrown out from the FOMC statement, something which appears unlikely with virtually zero advance preparation by the Fed. It would also mean that the Fed can and should officially burn its mockery of a "dot plot" once and for all.
Finally, there is Trump, whose input into this process is certainly relevant, and since the President will do anything to push the market higher at any cost, one almost wonders if the new "Fed whisperer" at the WSJ, Nick Timiraos who has replaced Jon Hilsenrath, is conveing messages from the Marriner Eccles building, or wishful thinking from the White House.
For now, however, whether it was Trump's or Powell's intention to send the market surging courtesy of the well-timed 3:30pm WSJ stick save, the plan has worked.