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Semiannual Testimony

In semi-annual testimony to the Senate, Jerome Powell Promised Easy-Money Policies Would Stay in Place.

“The economy is a long way from our employment and inflation goals,” Mr. Powell said in testimony to the Senate Banking Committee, a statement he has repeated in recent weeks. The Fed will therefore continue to support the economy with near-zero interest rates and large-scale asset purchases until “substantial further progress has been made,” a standard that Mr. Powell said “is likely to take some time” to achieve.

Noting that asset bubbles triggered recessions in 2001 and 2007-09, Sen. Pat Toomey (R., Pa.), the top Republican on the panel, asked Mr. Powell if he sees a link between elevated asset prices and the Fed’s easy-money policies.

“There’s certainly a link,” Mr. Powell said. “I would say, though, that if you look at what markets are looking at, it’s a reopening economy with vaccination, it’s fiscal stimulus, it’s highly accommodative monetary policy, it’s savings accumulated on people’s balance sheets, it’s expectations of much higher corporate profits…So there are many factors that are contributing.”

S&P 500 15-Minute Chart

Fed Soothes the Market With Easy Money Talk

Nasdaq Index 15-Minute Chart

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Nasdaq 100 Index 15-Minute Chart 2021-02-23

For the technically minded, these gap downs and recoveries are more than a bit troubling.

Also, please note the Very Unusual Move in Mortgage Rates vs the 10-Year US Treasury Yield

What happens when promises of more stimulus are not enough?

If the housing and the stock market bubbles break simultaneously, the Fed will have an enormous problem.

Watch junk bond yields. I expect junk bonds to break first.