"This Is Not 2007/8" - Hawkish Fed's Bullard Confirms "Mid-Cycle Adjustment"

With stocks rebounding dead-cat-like overnight, St. Louis Fed President Jim Bullard may have just stolen the jam out of the market's donut, confirming Powell's more hawkish comments that "this is a mid-cycle adjustment" and sees no recession on the horizon.

The normally outspoken dove commented that he "would not consider the latest tit-for-tat with China an intensification" and added that "now is the time to see if we bought enough insurance."

The St.Louis Fed head noted that he "does not see conditions warranting a 50 basis point cut all at once," and that The Fed "has already adjusted for trade uncertainty," adding that The Fed "should not react to short-term market moves."

Further disappointing the liquidity-addicted market, Bullard - who is currently a voter on the Fed’s policy-setting committee - said that "US monetary policy is considerably more accommodative than it was as of late last year" and added that "while additional policy action may be desirable, the long and variable lags in the effects of monetary policy suggest that the effects of previous actions are only now beginning to impact macroeconomic outcomes", in effect pushing back against the market's demands for 3 or more rate cuts by the end of the year.

Instead, Bullard suggested that monetary policy is already sufficiently accomodative, noting that "policy has already adjusted to the fact that trade uncertainty will remain high" and that it remains not clear "Fed wants to ‘pile on’ more monetary accommodation until it is clear how moves so far will effect the economy" especially since the impact of changes in Fed policy will become more apparent in the second half of 2019 or early 2020.

But the most disappointing was Bullard's warning that it is a losing game for the Fed to respond to stock market movements, and that the Fed "should not react to short-term market movements", even though that's precisely what the Fed has been doing for the past decade.

Meanwhile, addressing the macro environment, he said that the Fed may be stuck with a volatile global trade environment for years, but cannot respond to the “day-to-day gave and take” of major nations feuding over the rules of the game, which ironically is precisely the opposite of what Powell said last week, further compounding the market's confusion by Fed communications.

Speaking a day after major stock markets fell by roughly 3 percent and the Trump administration labeled China a “currency manipulator,” Bullard said the Fed “cannot reasonably react to the day-to-day give-and-take of trade negotiations.”

“I think of trade regime uncertainty as simply being high in the current environment,” Bullard said in a presentation on the U.S. economy and monetary policy before a National Economists Club luncheon. “I do not expect this uncertainty to dissipate in the quarters and years ahead.”

But the bigger issue is that contrary to expectations, Bullard refused to commit to more accommodation, All of which is problem for a market now demanding almost 3 more rate-cuts this year.

Additionally, Bullard warned apparent doves that "we are not in a situation like 207-8" and said that he "wouldn't rule out more policy changes ahead."

Finally, Bullard spoke optimistically, saying "lots of good things going on in the economy."

Markets, for now, are entirely ignoring this sentiment shift from a noted dove.