Blaming the wild swings on the Federal Reserve’s attempt to normalize interest rates is camouflage for the real danger driving the financial markets into a period of fear and resulting wild volatility.
By James DiGeorgia
After the Federal Reserve raised interest rates now almost three weeks ago its chairman, Jerome Powell issued a statement that asserting his and Federal Reserve’s confidence in the outlook for the United States economy.
The increase in the interest rate executed by the Federal Reserve was designed as a continued effort to normalize rates and put the central bank in a position to have the tools to address an inevitable economy slowdown and possible recession that could occur by 2020.
There are those that argue that Powell’s message about the country’s economic vitality was “excessively dismissive” and that’s what sent the stock and commodities haywire. The critics argue that Powell’s comments were interpreted as implying the “Fed was dead-set on pushing interest rates higher to prevent some hypothetical future inflation. Consequences be damned” and that the jaw-dropping series of market swings, combined with hints that a broader world economic slowdown should force Mr. Powell to rethink things. As one of these critics, Neil Irwin a senior economics correspondent for The New York Times wrote recently …
“Two weeks ago, the consensus of Mr. Powell’s Fed colleagues was that two more interest rate increases were likely this year. In his message Friday, in a panel I moderated at the American Economic Association, he decidedly did not reaffirm that projection. Instead, his emphasis was on flexibility, adaptability, and open-mindedness.
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“The markets seemed to love it — and why wouldn't they? Mr. Powell’s appearance essentially repaired the damage from his indifferent tone of two weeks ago.
“The market response Friday — the S&P 500 rose quickly and closed up 3.4 percent — seemed to be to his opening comments, which Mr. Powell read from notes. They were deliberate and precise words, not off-the-cuff remarks. Sometimes, markets overreact to extemporaneous remarks a Fed chief makes in a news conference or a congressional hearing; this was not one of those cases.
“It also helped that the dovish message arrived less than two hours after an employment report that showed exceptionally strong job growth in December.
“For certain monetary policy traditionalists, the robust wage growth in that report — up 3.2 percent over the past year — could point to inflation worries. But in the panel, Mr. Powell made a point of saying the wage growth number did not alarm him and should not be taken as a signal that prices were set to spiral out of control.
“It is a safe bet that the Fed will not be raising rates in the early months of 2019, and will resume its tightening campaign only once the global outlook is clearer, or once a more substantial inflation risk appears in the United States.
“It’s particularly clear that the lessons of history loom large in Mr. Powell’s thinking. In 2015 and early 2016, when he was a Fed governor and Janet Yellen was chairwoman, an eerily similar episode dragged down U.S. economic growth so much that it can be thought of as a mini-recession.”
Critics like Neil Irwin who attributes the roller coaster ride on Wall Street to the Federal Reserve’s attempts to normalize rates instead of to the policies and drama unfolding every day this Chaos Presidency are missing the bigger picture.
It’s President Trump’s trade war with our principal trading partners China, Japan, Mexico, Canada and Europe, his willingness to sending the national debt soaring. His efforts to bring immigration to a standstill as well as the corrupt administration believe that it's above the law that is the reason the financial markets are being shaken to their core.
According to Neil Irwin and other critics of Federal Reserve Chairman Powell…
“The loud-and-clear message is that Mr. Powell and his colleagues aren’t going to put their hands over their ears, ignore these messages (wild swings) from markets, and carry on as planned. And that, in turn, seems to make some of the darker possibilities for 2019 a lot less likely.”
It’s an absurd conclusion. The volatility in the financial markets is being driven by this chaos presidency and President Trump’s reckless, narcissistic by gut decision making all geared to one purpose; his not being convicted in the Senate, convicted for his many crimes by the myriad of federal, state and local authorities now investigating him, his businesses and his family.
Neil Irwin and others want you to believe 2019 will be less dark because the Federal Reserve is much more likely after the market swings and Trump’s attacks on its Chairman. I’m here to call bullshit on that conclusion and instead urge you to consider the effect of the shit storm this chaos presidency will bring in 2019.
The financial markets will remain volatile for as long as this inept, incompetent, corrupt, chaos-prone presidency is allowed to remain unleashed by the GOP controlled Senate. Pointing the finger at Jay Powell and the Federal Reserve as the cause of the 700 to 1,000 point swings is just plain dumb.
Like Senator McCain would joke from time to time…
“It always darkest BEFORE the lights completely go out.”
If Trump allows this partial government shutdown to continue, it will become obvious by the resulting economic damage; he’s the one turning out America’s economic pilot light, not Jay Powell and the Federal Reserve.