Is The Fed Finally Done Rescuing Markets?
Submitted by QTR's Fringe Finance
GLJ Research’s Gordon Johnson is one of my favorite analysts on the street to read and gets a rare endorsement from me (I hate basically everyone selling sell-side style research) because, like my friend Mark Spiegel, he is one of the last few analysts out there that seems committed to the truth….no matter how ridiculous it makes him look in the short term while he’s waiting for his theses to play out.
Johnson came away from this week’s Fed meeting with a conclusion that would have sounded almost absurd just a few months ago: the Fed may finally be breaking with the post-2008 playbook. And the timing couldn’t be better for the Fed to do this to make a total fool out of me. After all, I literally just predicted a month ago there’s no way they would ever stop the neverending cycle of QE they started two decades ago. Days ago, I satirically wrote that the only bear case left for markets is total human extinction.
Enter Kevin Warsh’s first press conference as Fed Chair with inflation running completely out of control. My friend GoJo makes the…err…bold claim that the Fed is not tweaking it’s post-2008 playbook…not adjusting it around the margins…breaking with it.
Johnson’s central argument is that Kevin Warsh’s first meeting as Fed Chair represented a repudiation of the Bernanke-Powell era and a return to a much older conception of central banking…one where the Fed’s primary job is delivering price stability, not reassuring investors, supporting asset prices, or providing a detailed roadmap for every future policy move.
The actual rate decision this past week was almost beside the point. The Fed held rates steady at 3.50%-3.75% for a fourth consecutive meeting. What mattered was everything around it. Warsh stripped forward guidance from the statement, calling it ill-suited to the current environment. He refused to submit his own dot-plot projection. The statement itself was shortened and reduced largely to facts. Nine of twelve participants now expect at least one hike by year-end.
Meanwhile, Warsh launched multiple task forces to reevaluate the Fed’s framework and openly emphasized the institution’s obligation to restore credibility on inflation....(READ THIS FULL ARTICLE HERE).