Saturday, December 22, 2018

Powell, the Third Mandate, the New Fed and Crawdads

By John Mauldin December 21, 2018

We have reached the best time of year, when we can look to the future with hope. We can stop wondering what will happen in 2018 and look forward to 2019. The investment industry always does this enthusiastically, as you will see in forecasts everywhere the next few weeks...........But first, I am going to offer some different thoughts than the mainstream media spin on Jerome Powell, his press conference, and the Federal Reserve.

My inbox and the mainstream media are packed with criticism of Jerome Powell’s press conference. The market didn’t like what it heard and immediately tanked. People called him tone deaf for not listening to the market. Looking at US-based indexes, and indeed most foreign ones, we are clearly in bear market territory with many benchmarks down well over 20% from their highs. What was Powell thinking?

There were many accusations that Powell fumbled the ball, not telling the market what it wanted to hear. As if that were his job.

I think Powell may have said exactly what he wanted to communicate. The last three Federal Reserve Chairs have acted like the Fed has three mandates: the two official ones (low inflation and full employment) and an unofficial third one: making sure asset prices rise as the market wants. Not just the stock market, but real estate and all other investment assets. It started with the Greenspan “Put” which morphed into the Bernanke Put (remember the taper tantrum?) and reached its apex with the Yellen Put.

And what did we get? A series of bubbles.............This makes me think Powell is perfectly willing to walk away from that unofficial third mandate. Is he letting his inner Volcker show just a little bit? If so… damn, Skippy, it’s about time!............To Read More....


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