Federal Reserve Chairman Jerome Powell sounded dovish in his post-Federal Open Market Committee (FOMC) meeting press briefing today. Wall Street wanted the word “gradual” replaced with “patient,” and they got it. The Dow was up over 400 points, and the other major US stock indices were up similarly. The talking heads on mainstream financial media were overjoyed.
It’s amusing to me that even they seem to have some notion of how ridiculous this is. I heard at least one commentator laugh in delight: “What a difference one word makes!”
The Fed, of course, didn’t actually change its policy.
Yes, Powell used the desired word—patient—five times in his remarks today. But he also stressed repeatedly that he thinks the Fed’s current policy is appropriate.
And what is that policy? To be “data dependent.” That’s a fancy way of saying: “We have no policy and will do whatever seems like a good idea at the time.”
Mr. Market is taking Powell’s newfound patience to mean there won’t be any more rate hikes this year—or at least that there won’t be one this quarter. But Powell didn’t say that. Being data dependent allows the FOMC to do whatever they want in their March meeting.
Similarly, market analysts are taking the FOMC’s clarification of its balance sheet normalization objectives as a clear sign that the “quantitative tightening” Powell last described as “on autopilot” will now be slowed, or even stopped entirely. But Powell didn’t say that either. The Fed’s objectives haven’t changed. Policy hasn’t changed. Normalization hasn’t changed. Apart from getting rid of the offending words “on autopilot,” nothing has really changed.
Again: being data dependent allows the Fed to do whatever it wants with its balance sheet, interest rates, or anything else.
Now, I’m not saying that the Fed will continue applying the brakes to the economy by raising rates or reducing its balance sheet. It may well do the opposite. I’m simply pointing out that the Fed had never actually committed to anything on these measures, and it is no more or less likely now to do whatever most FOMC members deem expedient than it was before.
So no, Powell did not just announce that the easy-money gravy train is back on track to reflate the everything bubble we’ve seen in recent years.
But he did sound more dovish. Doesn’t that mean that the Fed has lurched back toward adopting an easy-money policy? It might—but the Fed clearly kept that option open all along, tightening only as long as positive-seeming economic data told them they could get away with it.
That’s the rational way to look at what didn’t just happen. But when has Mr. Market been rational? He clearly believes that the tightening is done and the easy money may soon return.
All of which is to say: please don’t let yourself get carried away along with the mainstream investors.
Remember, if the Fed really is more worried about the economy than Powell let on, that’s not a good thing for most investments.
In this context, it’s significant to me that gold was up sharply today, along with most stocks.
It’s interesting to me that most stocks started rising at the open and continued rising all day—well before the FOMC released its dovish statement. Gold was slumping all day, but then went vertical when the Fed news hit the wires.
This tells me that whether the Fed has turned more dovish or not, the perception that it has is bad for the US dollar and good for gold. That perception is likely to stay in place until the next FOMC meeting. It may well continue all year, if the Fed continues to use the words Wall Street wants to hear.
That’s very bullish for all my speculations as is. My view that gold and silver are likely to do very well this year just got a big boost.
Wall Street’s sigh of relief may also lift the burden that has been holding uranium stocks down, despite higher uranium prices. That would make this a win-win year for my portfolio.
I hope the same is true for yours as well.
And if the Fed goes from merely sounding more dovish to actually easingmonetary policy… hold on to your hats.
