It is all but certain that negative rates will be here in the United States in short order (within a year). Despite the many voices of protest from several members of the Federal Reserve regarding the adoption of negative rates – it’s sad to say, but we don’t trust them as far as we can throw them. This is the same group that claimed only 1 1/2 years ago that the Fed’s balance sheet was on autopilot with respect to shrinking their balance sheet. Well fast forward to today and we have had several interest rate cuts, two of which transpired during emergency meetings that have taken us back to the zero bound. And what of the balance sheet? Oh yes, over the last two months the Fed has added over $2T in assets to its books. So excuse us if we do not believe the rhetoric from the Fed. After all, it’s no big secret that the Fed follows the market, especially during these types of events. Now of course, the Fed also tries to lead the markets with their rhetoric, which they claim is an effective tool in the kit – but the question remains, how effective and for how long? If the markets are always expecting the Fed to do more and the Fed can’t live up to the hype and the promises, then how will markets behave? Are we setting ourselves up for one of the biggest “buy the rumor and sell the fact” events?
The reason for today’s topic is because Jay Powell, Chairman of the Federal Reserve gave an interview this morning and so we thought it prudent to cover his remarks in greater detail. Some of the key takeaways were the following remarks from the Chairman: there is no bubble to pop, the usual suspects are not to blame, it is all the fault of COVID19, above and beyond what the Fed can do by law as outlined in their charter, will only take place with the direct approval of the Treasury Secretary (thus potentially shifting the blame to the government and not the Fed), once the crisis is over all of their tools will be put away, highlighted the important difference between a liquidity crisis and a solvency crisis, and how the Fed can only do so much and mainly on the liquidity side of that ledger, and lastly, how the fiscal side of the equation will likely have to carry more weight – thus calling out Congress to do more, but stopping short of giving them any recommendations. So there you have it – delusional comments about no bubbles and no issues prior to COVID19 – an unlimited amount of money to be printed, and seemingly an unlimited amount of federal spending is likely required and is perfectly fine with those soaring deficits and debts. We did tell you this is now a banana republic – enjoy the rum! Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #EndTheFed #Bailouts #Debt #USA #Recession #Depression #Jobs #Gold