Fed Watching for Fun & Profit: A Primer for Investors (Predicting the Markets Topical Study Book 3) by Edward Yardeni

Author:Edward Yardeni [Yardeni, Edward]
Language: eng
Format: azw3
Publisher: YRI Press
Published: 2020-03-12T16:00:00+00:00

The Tuesday November 27 issue of The Wall Street Journal included an article by Nick Timiraos titled “Fed Shifts to a Less Predictable Approach to Policy Making.”140 It was based on interviews with Fed officials who “will be deciding whether and when to raise interest rates more on the basis of the latest signs of economic vigor—such as in inflation, unemployment and growth—and less on forecasts of how the economy is expected to perform in the months and years to come.” They were admitting that they are more uncertain about the level of the neutral interest rate and were “looking for clues in markets and economic data that might suggest whether this point might be higher or lower.”

The very same day, in a November 27 speech, Clarida reiterated that both the neutral rate of interest and the unemployment rate that is consistent with stable inflation are unmeasurable. So needing to get a fix on them “supports the case for gradual policy normalization, as it will allow the Fed to accumulate more information from the data about the ultimate destination for the policy rate.” That also supported the case for longer pauses in between rate hikes, in my opinion.141

In a speech at The Economics Club of New York on Wednesday, November 28, Powell confirmed my assessment when he said, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy—that is, neither speeding up nor slowing down growth.”142 Stock investors jumped for joy upon hearing Powell’s “just below” comment.

The next day, on November 29, the minutes of the November 7–8 FOMC meeting came out.143 The word “restrictive” had been dropped. In my November 29 commentary, I exuberantly wrote:

The Fed’s critics will say that now we have a fourth Fed chair in a row providing the stock market with a put, i.e., the Powell Put. Maybe so. However, if Janet Yellen was the “Fairy Godmother of the Bull Market,” as we often fondly called her, then Powell for now is the bull market’s Santa. The Santa Claus rally that started on Monday should drive the S&P 500 back to retest its 9/20 record high around 2900 by the end of this year.

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