No Preset Path

“As always, there is no preset path for policy,” Powell said. “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”

Balance Sheet Reduction

The above statement is amusing given that Powell discussed a balance sheet autopilot following the December 19 FOMC meeting.

We thought carefully about how to normalize policy and came to the view that we would effectively have the balance sheet run off an automatic pilot and use monetary policy, rate policy to adjust to incoming data. I think that has been a good decision. I think that the runoff of the balance sheet has been smooth and has served its purpose and I don't see us changing that. And I do think that we will continue to use monetary policy, which is to say rate policy as the active tool of monetary policy.

Autopilot Off

Apparently, the autopilot is now off.

So What? It Doesn't Matter

None of this matters in the least. One additional rate hike will not tip the economy into recession. One rate hike less, or even a rate cut will not prevent a recession.

Economic imbalances are staggering following decades of Fed officials blowing repetitive economic bubbles of increasing amplitude.

Dot Thought Thickens

That's what the dot plot of expected rate hikes looked like in December. It will not look that way following the next FOMC meeting.

Over time, the dot plot always thickens.

The December meeting will show unanimous or near-unanimous opinion that the Fed is doing a brilliant job for the current year.

What Does Matter

Image placeholder title

Suddenly, There's No Appetite for Bond Deals as Spreads Widen. And the BIS Fears "Bulge of BBB Debt" and "Financial Cycle" Default Waves.

The BIS warns of $3.15 trillion in BBB corporate debt hovering just above junk that "if and when the economy weakened, it is bound to put substantial pressure on a market that is already quite illiquid and, in the process, to generate broader waves."

Economy Isn't a Truck

No matter how hard the Fed tries, the economy can't be steered like a truck by a group of economic wizards. The economy isn't a truck.

Attempts to steer the economy coupled with inane fear of routine price deflation are a key reason we have these bubbles.

CPI Deflation Not a Problem

The BIS did a historical study and found routine deflation was not any problem at all.

"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For further discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Tinder Stacked a Mile High

Real World

In the real world, bubbles eventually matter.

My assessment stands: A Fed-Sponsored Economic Bust is Coming no matter what the Fed says or does now.

Mike "Mish" Shedlock

Half-Point Rate Cut Odds Explode to 71% - So What? It Doesn't Matter!

The odds of a 50 basis point rate cut on July 31 topped the 70% mark in the wake of a dive in leading indicators.

What a Hoot: Fed Chairman Powell Says "Growth Has Picked Up"

In his first non-FOMC speech, Jerome Powell stresses growth and jobs.

Powell Is Concerned About Dots

In Jerome Powell's speech on Friday, he displayed a huge concern over the dot plot, an estimation of future rate hikes.

Powell Praises the Fed, Discusses the Stars (Literally), Defends Goldilocks

In Jackson Hole, Jerome Powell gave his first speech as Fed Chairman. It was little more than a defense of Fed policy.

Hello Jerome Powell, We Have Questions

This is an open letter to Jerome Powell and the Fed.

Politicians Beware: It's Best Not to Deliver What You Actually Promise.

French president Emmanuel Macron delivered on his main campaign promises. Please consider what happened next.

QE Debate: What Did Powell Mean by "Need to Resume Balance Sheet Growth"?

Some interpreted Powell's statement to mean more QE. There's a strong clue Powell meant something else. OK, but ....

Trickle Down Theory: Powell Chastises Trump, Praises Himself

In a speech today, Fed Chair Jerome Powell took a swipe at Trump, then patted himself and the Fed on the back.

Powell Ready to Cut Rates to "Effective Lower Bound" via "Conventional" Policy

Powell gave a speech today showing his resolve to support the markets. He suggested retiring the word "unconventional".