Powell Following Bernanke

Pansy Powell.  Since the scolding he took from both Wall St. and the stock market obsessed media for raising 25 bps in December 2018, he has been nothing but a Wall St. sell out.  Always giving what the market wants, even if he has to come up with ridiculous excuses and new standards for tightening.  Much like Bernanke from 2009 to 2013, until he finally tapered just as he was getting ready to exit, pulling the pin off the grenade just as he was passing it to Yellen.  

Powell is pulling off the same maneuver that Bazooka Ben did by waiting till the latest possible moment before tightening and disappointing the markets.  What is Powell's excuse this time?  Waiting for the data, BACKWARD LOOKING data.  

Here is how the Fed works:  forward looking data (basically financial conditions) that is showing weakness is a reason to ease (2011, 2019), but forward looking data that is showing strength is NOT a reason to tighten (2013, 2021).  Only backward looking data, in other words stale economic data, that shows big growth will cause the Fed to tighten.  

That means Powell will be doing this same dovish song and dance until the hot data starts coming in during the summer and fall, and then he'll probably float some trial balloons on tapering just to gauge the market reaction.  If the market doesn't blow up, he probably eventually announces a taper after the market expects it at the end of the year.  If the market blows up before year end, you can forget about the taper, and Powell will come up with another excuse about not tightening, such as not meeting their inflation target, or repeating the same garbage about inflation being transitory or unemployment rate is still too high, etc.  

At this point, the market probably wants a tighter Fed, contrary to what Powell thinks.  A tighter Fed would probably keep long end rates from going even higher because at least the Fed will have regained a tiny bit of their inflation fighting credibility.  And if long end rates are under control, that benefits the tech stocks, thereby helping the S&P 500.  But with Powell's short term thinking, he probably thought he did a masterful job pumping the markets on Wednesday and it lasted, for one afternoon, and then an immediate double barrel selloff in both the bond and stock market the next day.

The Fed are a bunch of hard headed doves, they even are slower to tighten than the BOJ, with their moribund economy.  It probably takes more market worries about inflation before the Fed finally gets the message and starts talking more hawkish.  

As I was watching Powell lob dovish word salad at the press conference, stumbling to find one lame excuse after another to keep the bazooka QE going without a hint of tightening, I remember mealy mouth Bernanke doing the same thing at every meeting  from late 2009 to the middle of 2013, when he was ready to unleash the taper grenade to Yellen while he took the credit for the economic recovery.  

In the bond market, we are looking at a taper tantrum light scenario, similar to 2013, except this time, the bond market is wiser, knowing that the Fed will always be late to tighten and always willing to talk down any inflation as transitory, making it less likely bonds go into full blown tantrum mode.  And if it did, I'm sure Powell would make a rash decision to placate the markets with either an Operation Twist (Bernanke playbook) or yield curve control (Kuroda playbook).  Bonds look oversold now, so probably see a bounce soon, but heading into the summer, 10 year yields probably get closer to 2%, which would probably act like the 3% ceiling did back in 2013.  

As for stocks, if rates calm down, and I expect it will, you probably don't get a big selloff until the summer, when taper talk will start to get more media attention.  And with stimulus mostly done (infrastructure stimulus probably doesn't happen until fall), the stock market probably trades sideways over the next few months.  Its gone up a long way and bond weakness is probably enough to halt its upward march.  

But you can't ignore the stimmy effect coming over the next few weeks.  Stocks are now the most popular way to spend excess cash among the masses.  Its almost like a time machine back to 1999, except this time, its not the internet revolution that's doing it, its the stimmy revolution.  Human progress has stopped, and the governments will do anything to put lipstick on this pig before the whole MMT house of cards falls apart.  This MMT honeymoon period won't last for long, in the long run, there is no free lunch from money printing.