On Tuesday, I had written my MINT column on the Powell PUT now reinforcing the trend of Greenspan, Bernanke and Yellen PUTs. I knew that the Fed Meeting was due to conclude on Wednesday. The Federal Reserve Open Market Committee (FOMC) did vindicate me. It is a huge letdown. This FT article calls the FOMC U-turn ‘momentous’. It, indeed, is. But, for the wrong reasons. The article cites somone from Barclays calling it a Powell PUT. Powell says NO. But, it is difficult to give him the benefit of doubt.
Narayan Kocherlakota is outdoing himself calling for a Fed rate cut now. The notion that there is a financial economy which will only be helped such mindless monetary easing, resulting in excessive risk-taking seems to escape him totally. Such excessive risk-taking, in turn, will result in a collapse or crash somewhere causing economic activity to slump and remain slumped for long, defeating the very purpose of monetary easing that he is calling for, now. Just recently, what is happening in Australian property market is an example. Stubbornness in the face of evidence to the contrary is not conviction. It is stupidity. Mr. Kocherlakota is keen on and proud to avoid the banana skins and never mind the manholes of finance!
The header of this post is a take-off from the short and sensible article in ‘The Economist’ on the overextension of finance in Australia. That is what I had mentioned in my MINT column too – a long cycle or an economy running well above capacity will spawn excesses.
Mike Mackenzie in FT cites an analyst/economist from Brown Brothers Harriman:
“We believe the Fed gave in too quickly and too completely to market demands that it pay more attention to market tantrums. By doing so, the Fed changed its message by a whopping 180 degrees from the December meeting. This goes back to our complaints about the extreme swings in Fed messaging over the last few months. Markets would have been happy with ‘patience’ and ‘flexibility’ but instead, the Fed went ahead and gave away the family silver.” [Link]
In the same spirit, John Authers wrote:
This begins to look like an example of the market leading a new Fed chairman by the nose. [Link]
Read this comment on the monetary policy stance of the European Central Bank:
Draghi had warned that the euro zone would slow this year, but things looks worse than predicted. This raises questions about the wisdom of stopping quantitative easing. He committed to this step in June last year, but a little more patience might have avoided the potential embarrassment of this turning into a policy mistake. [Link]
Comments such as this betray lack of elementary commonsense. If, after several years of unprecedented asset purchases, zero and/or negative interest rates, one withdrew the policy tentatively and the economy slowed down considerably, then what does one make of the efficacy, the durability or the desirability of such a policy medicine? Isn’t it normal to ask if that was the right policy at all? It is hard to believe that journalists cannot get themselves to ask such an elementary question.
The world lacks leaders with the right sort of convictions and spine to see them through. If not, they should even have the courage to resign and use their resignation as a bully pulpit.
Feel sad and let down.
[No, not because, as you might think, I have short positions on the equity market. I don’t.]