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Trump's Fed Chair does not listen to the markets or Trump-Axios



At the end of we seem to be one of the most amazing bull races in stock market history, and there is little evidence that Fed Chairman Jay Powell is particularly interested.

Bottom Line : Powell will continue to make pro-forma sounds when it comes to the attention of financial markets. But he will not let Dow dictate US monetary policy.

  • From their lows in March 2009 to their highs in September this year, equities rose more than 280%. With dividend reinvested, the total return was 365%. That's 1
    7.5% per year, annualized.
  • Throughout their journey, they were helped by an unprecedented accommodative monetary policy and perhaps a tiny dash of irrational exuberance.

Now, interest rates are back to normal and stock prices have fallen by 15%. Hits The valuations are still pretty healthy – the S & P 500 is trading at around 15x the gain – and generally the stocks are the fell the most, even those who had risen the most. For example, while Facebook has fallen 42% from its peak in July, it has still been over 250% over the last 6 years.

The Big Picture: Powell is not an economist; He is a banker for capital markets. Strangely enough, the makes it less around the markets than its predecessors with economics doctors. Much of the financial economy is based on the efficient markets hypothesis, which states that market movements convey important information. That makes central bankers worried when markets fall. Bankers, on the other hand, know that stock valuations are largely arbitrary and recognize that volatility is normal.

  • It's not healthy when stock prices rise in the face of global geopolitical chaos as in the first 18 years, steadily and steadily rising for months or so by the Trump administration.
  • Markets expect Fed economists to lower interest rates (or at least not raise them further) if equities drop 10% or more. That too is not healthy. The Fed has no mandate to boost the stock market or catch it when it falls – especially if the decline is simply a drop from frothy to a sensible level. (I'll hear more about stock appreciation next week.)

Between the lines: Axios & # 39; Courtenay Brown asked Powell this week about the way the market responded to his speeches. Former Fed Chairmen took great pains to choose their words carefully so that markets would not read into them something that was not there.

  • Powell is different : He does not care.
  • Powell did not answer Axios' question which itself spoke volumes. He knows that the current hair trigger market will move almost all news up and down. That's not his problem.
  • Dion's Thought Bubble : Powell speaks much more openly and simply than Yellen or Bernanke or Greenspan. Unlike Yellen and especially Bernanke, Powell does not feel like he has to go back and clean it up after he says it and the market has taken things wrong.

Go Lower : Why the Fed is right to go up.

This story first appeared in Axios Markets

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