A Follower Not a Leader

In 2018, Powell bought into the strong economy story and raised rates 4 times while continuing the balance sheet runoff.  In 2019, Powell is buying into the economic slowdown story and will do rate cuts, coming up with any lame excuse he can find from the pile of BS reasons used for QE/rate cuts in the past. 

Their favorite excuse is low inflation, forgetting the fact that most of the government inflation measures are butchered beyond recognition to print out a steady stream of low numbers. 

In June, Powell came up with a new one: sustain the expansion.  But lowering interest rates from 2.25% to 1.5% doesn't really move the needle.  If he really wanted to sustain the expansion and be a leader, not a market slave, he would go straight to 0% Fed funds rate and jolt the economy for a few months.  Cutting 75 bps as the market already expects isn't going to do the job, it will probably end up disappointing the stock market which is full of excitement and anticipation waiting for rate cut goodies. 

Going to 0% will sustain the expansion, maybe for another 6-9 months, until the 2020 election gets closer, at which point the threat of an anti-corporate welfare President starts worrying corporations and thus, the stock market, and therefore the economy. 

Powell has clearly shown that he is a slave to the bond market, more than the stock market.  When the bond market was pricing in 3 more rate cuts in October 2018, he was still hawkish and only made a dovish pivot when both the stock and bond markets dropped a sledge hammer on his head to rethink his view. 

Don't expect Powell to surprise on the hawkish side anytime soon.  Fed chairmen are always looking in the rear view mirror when determining monetary policy.  December 2018, and to a lesser extent May 2019, are firmly branded into Powell's skull.  Those memories aren't going to fade away for a while, which means that rate cuts will be happening in July and September, and probably also October if the stock market doesn't make new highs. 

Powell is a follower.  Bernanke was a follower at first, and became a leader, a horrible leader, but a leader nonetheless.  He regularly surprised markets on the dovish side, leading them to forecast continuous low rates, because he saw another Great Depression around every corner, because he was afraid of the deflation boogeyman that didn't exist, and because he's a coward who took the easy way out by pumping up the stock and bond markets, thus pulling forward demand, ensuring a lackluster economy for decades after his tenure was over. 

You trade what is, not what you want.  It would make for great trading to see a Fed that defies the markets by not giving them the rate cuts that they want, causing occasional plunges lower, to keep speculators at bay.  Now its a Fed that just rolls over to whatever the market demands.  The financial markets hold a gun to Powell's head, and he's scared shitless.  Of course he's going to take the easy way out, and give in.