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President Powell, bring me your flashlight. The tribe spoke. (Getty stock photos / royalty-free)
Not China.
No geopolitics.
It is not the middle and the blue wave in suspense that everyone continues to insist: President Trump will be plunged into a destitution scenario next year and will roll back his agenda.
The slide of 600 points last Wednesday and the slide of more than 400 points on Thursday are due to a man and an institution: Jerome Powell, president of the Federal Reserve. When he speaks, the market will collapse.
To use the motto used by host Jeff Probst of the reality TV show Survivor: "President Powell, the tribe spoke."
Jeff Probst, Survivor host. In Survivor: Wall Street vs. Washington, the tribe merged and the Wall Street tribe voted Jerome Powell to leave the island. (Photo of CBS via Getty Images)
Last week's market reaction appeared to be driven primarily by the perception of a potentially more aggressive Fed, rather than a sudden deterioration in data, Barclays Capital economists said in a note to customers on Friday.
Fed rates range from 2% to 2.25%, but Powell reiterated Wednesday that tightening labor market was a cause for concern. Inflation eased somewhat, but it rose 2.2% year-on-year, putting real yields close to zero. US rates are expected to reach only 3.25% by the same period of next year, which means that if inflation remains around 2%, the real rates in the United States are only 1, 25%. This leaves no room for the Fed to cut spending in the event of a recession. The Fed typically lowers its rates by around 500 basis points during a downturn. This would put the real rates in negative territory.
President Trump still sounded the alarm. He thinks that even 1.25% is too high.
"It's a correction that I think is caused by the Federal Reserve, with interest rates," Trump said last Wednesday. "Interest rates are rising much faster than expected by many people.I think what they do is bad."
Anything that threatens his economic growth hurts the president. He talked about the economy and immigration, but the immigration reform has not succeeded. There is no southern border wall in the works.
The economy and the new trade agreements with Mexico, Canada, South Korea and Japan are all positive elements for the president. A bull market, which began in March 2009, the first year of Obama's term through quantitative easing and falling interest rates, is useful for the Trump Republicans mid-term. He is also helpful for Trump in 2020, assuming he is a candidate for reelection.
Jerome Powell, President of the US Federal Reserve. Lately, when he speaks, the market will collapse. Photographer: Andrew Harrer / Bloomberg
See: The Fed is a bigger obstacle to the trade war in China – Forbes
The United States again grew 3.2% in the third quarter, surpassing almost all developed market economies. This has not changed even though the Fed has been rising all year.
"I think the market is going higher," said Byron Wien of Blackstone. He is optimistic about equities, saying the S & P 500 should reach 3,000 by the end of the year.
Many investors believe that the Fed's mandate in terms of inflation has been achieved. Inflation is under control. So why bother to go hiking?
"The drop in prices should be enough to calm the fears of a Fed too aggressive," said Stifel Chief Economist Lindsey Piegza. "The market is not so convinced that the Fed Open Markets Committee will give justified attention to the recent decline in inflation and remains on a" gradual "trajectory."
Charles Evans, President of the Federal Reserve Bank of Chicago: Rates up and up. And if that's not enough, they'll go back up. Photographer: Daniel Acker / Bloomberg
The Dow erased some of its losses on Friday, but ended the week with a 1,000-point drop to 25,339.
Recent comments from members of the Federal Open Market Committee, including John C. Williams (New York), Robert Steven Kaplan (Dallas), Patrick Harker (Philadelphia) and Charles Evans (Chicago) announce more hawks with a promise to raise rates above neutral before considering a break. The neutral rate at the end of September was 3%.
Three further rate hikes are already planned, the next is scheduled for December. Powell repeated last week that it may be justified to add 50 points more than the neutral rate, which would tilt the Dow.
Jamie Dimon, President and CEO of JP Morgan Chase. The economy is good. A Fed falters … not so good. Dimon estimates that Treasury rates will reach 4%, but believes that the economy is strong enough to bear higher capital costs. Photographer: Daniel Acker / Bloomberg
If the Fed exceeds the neutral rate, the theoretical level supposed to balance growth and low inflation, Powell is ready to make 3% a moving target.
"Maybe we underestimated the neutral rate," he says. "Maybe we'll increase our neutral rate estimate and just go, or maybe we'll keep our neutral rate here and then go one or two rate hikes."
On Friday, Jaime Dimon, CEO of JP Morgan, said he was already considering a 4% Treasury return and that he was not worried about it. For him, the economy is strong enough to cope with it.
Long-term investors are not too worried either. BlackRock's CIO, Richard Turnill, said the same thing last week: the economy is strong, Fed or not Fed.
"We think it will take a few weeks before everything is completely destroyed," said Gerry Frigon, director of investments at Taylor Frigon Capital Management in San Luis Obispo, California. "Some of the reasons given – trade wars in China, higher interest rates, the mid-term elections – are in our opinion non-runners, we would not react to any of these issues," he said. he declares. "We will not let the trends of day traders dictate our long-term investment decisions."
Nevertheless, Wall Street agrees on one thing: combined with last week's statement that we are "far" neutral, the Fed is the main risk for the economy.
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President Powell, bring me your flashlight. The tribe spoke. (Getty stock photos / royalty-free)
Not China.
No geopolitics.
It is not the middle and the blue wave in suspense that everyone continues to insist: President Trump will be plunged into a destitution scenario next year and will roll back his agenda.
The slide of 600 points last Wednesday and the slide of more than 400 points on Thursday are due to a man and an institution: Jerome Powell, president of the Federal Reserve. When he speaks, the market will collapse.
To use the motto used by host Jeff Probst of the reality TV show Survivor: "President Powell, the tribe spoke."
Jeff Probst, Survivor host. In Survivor: Wall Street vs. Washington, the tribe merged and the Wall Street tribe voted Jerome Powell to leave the island. (Photo of CBS via Getty Images)
Last week's market reaction appeared to be driven primarily by the perception of a potentially more aggressive Fed, rather than a sudden deterioration in data, Barclays Capital economists said in a note to customers on Friday.
Fed rates range from 2% to 2.25%, but Powell reiterated Wednesday that tightening labor market was a cause for concern. Inflation eased somewhat, but it rose 2.2% year-on-year, putting real yields close to zero. US rates are expected to reach only 3.25% by the same period of next year, which means that if inflation remains around 2%, the real rates in the United States are only 1, 25%. This leaves no room for the Fed to cut spending in the event of a recession. The Fed typically lowers its rates by around 500 basis points during a downturn. This would put the real rates in negative territory.
President Trump still sounded the alarm. He thinks that even 1.25% is too high.
"It's a correction that I think is caused by the Federal Reserve, with interest rates," Trump said last Wednesday. "Interest rates are rising much faster than expected by many people.I think what they do is bad."
Anything that threatens his economic growth hurts the president. He talked about the economy and immigration, but the immigration reform has not succeeded. There is no southern border wall in the works.
The economy and the new trade agreements with Mexico, Canada, South Korea and Japan are all positive elements for the president. A bull market, which began in March 2009, the first year of Obama's term through quantitative easing and falling interest rates, is useful for the Trump Republicans mid-term. He is also helpful for Trump in 2020, assuming he is a candidate for reelection.
Jerome Powell, President of the US Federal Reserve. Lately, when he speaks, the market will collapse. Photographer: Andrew Harrer / Bloomberg
See: The Fed is a bigger obstacle to the trade war in China – Forbes
The United States again grew 3.2% in the third quarter, surpassing almost all developed market economies. This has not changed even though the Fed has been rising all year.
"I think the market is going higher," said Byron Wien of Blackstone. He is optimistic about equities, saying the S & P 500 should reach 3,000 by the end of the year.
Many investors believe that the Fed's mandate in terms of inflation has been achieved. Inflation is under control. So why bother to go hiking?
"The drop in prices should be enough to calm the fears of a Fed too aggressive," said Stifel Chief Economist Lindsey Piegza. "The market is not so convinced that the Fed Open Markets Committee will give justified attention to the recent decline in inflation and remains on a" gradual "trajectory."
Charles Evans, President of the Federal Reserve Bank of Chicago: Rates up and up. And if that's not enough, they'll go back up. Photographer: Daniel Acker / Bloomberg
The Dow erased some of its losses on Friday, but ended the week with a 1,000-point drop to 25,339.
Recent comments from members of the Federal Open Market Committee, including John C. Williams (New York), Robert Steven Kaplan (Dallas), Patrick Harker (Philadelphia) and Charles Evans (Chicago) announce more hawks with a promise to raise rates above neutral before considering a break. The neutral rate at the end of September was 3%.
Three further rate hikes are already planned, the next is scheduled for December. Powell repeated last week that it may be justified to add 50 points more than the neutral rate, which would tilt the Dow.
Jamie Dimon, President and CEO of JP Morgan Chase. The economy is good. A Fed falters … not so good. Dimon estimates that Treasury rates will reach 4%, but believes that the economy is strong enough to bear higher capital costs. Photographer: Daniel Acker / Bloomberg
If the Fed exceeds the neutral rate, the theoretical level supposed to balance growth and low inflation, Powell is ready to make 3% a moving target.
"Maybe we underestimated the neutral rate," he says. "Maybe we'll increase our neutral rate estimate and just go, or maybe we'll keep our neutral rate here and then go one or two rate hikes."
On Friday, Jaime Dimon, CEO of JP Morgan, said he was already considering a 4% Treasury return and that he was not worried about it. For him, the economy is strong enough to cope with it.
Long-term investors are not too worried either. BlackRock's CIO, Richard Turnill, said the same thing last week: the economy is strong, Fed or not Fed.
"We think it will take a few weeks before everything is completely destroyed," said Gerry Frigon, director of investments at Taylor Frigon Capital Management in San Luis Obispo, California. "Some of the reasons given – trade wars in China, higher interest rates, the mid-term elections – are in our opinion non-runners, we would not react to any of these issues," he said. he declares. "We will not let the trends of day traders dictate our long-term investment decisions."
Nevertheless, Wall Street agrees on one thing: combined with last week's statement that we are "far" neutral, the Fed is the main risk for the economy.
