News by Win McNamee/Getty Images
The Federal Open Market Committee of the Federal Reserve System, the group that makes the Fed’s monetary policy decisions, increased the range of the Fed’s policy interest rate by 75 basis points.
The rank for the Federal Funds rate is now 2.25% to 2.50%.
The stock market went up.
The Standard & Poor’s 500 stock index closed at 4,023.61, up 102.56 points on the day.
The Dow Jones Industrial Average closed at 32,197.59, up 436.05 points for the day.
And, the NASDAQ closed at 12,032.42, up 469.85 points for the day.
Is this how it’s supposed to be?
The Fed tightens monetary policy and the stock market rises?
Well, apparently that’s where we are.
Stock market in bearish position
Explanation?
Well, here is an answer.
Two big tech companies, Microsoft ( MSFT ) and Alphabet ( GOOG , GOOGL ), the parent of Google, reported earnings results that were better than investors expected.
And Tim Leary, High Yield Bond Portfolio Manager at RBC Global Asset Management, it offers us a narrative:
“The market is positioned to the downside.”
“Trading volumes have been thin.”
“You get a whiff of good news and it doesn’t take much to have a rally in the market.”
The ones responding must be the sophisticated wealthy investors who are still asking for large sums of money to take advantage of the Fed’s short-term actions. They are trying to skew the distribution of income and wealth more in their favor by playing on the Fed’s policy to return and inflate stock prices in the near future.
This image was painted on the post I made yesterday.
It was a picture of wealthy individuals asking for a lot of money to buy down stocks because they know that the Federal Reserve will soon return to the market to ensure a recovery in stock prices.
After all, that’s what the Federal Reserve has been doing for the past forty years.
Well, we’ll see.
The president of the Fed
Fed Chairman Jerome Powell is talking as if that won’t happen this time.
But, past behavior doesn’t make it a strong bet that he’ll stick with his “talk.”
Investors are skeptical.
That’s how Seema Shah, chief global strategist at Principal Global Investors sees it Federal Reserve Policy progressing
“We want to hear what [Fed Chairman Jerome] Powell is thinking about the outlook for inflation and what he is thinking about the outlook for growth.”
“But we have to be careful.”
“We’ve learned in the last couple of months that we can’t read too much into any broad guide.”
Well, that’s a shame.
The investment community should not feel this way about the chairman of the Federal Reserve.
The investment community must have “confidence” in the chairman of the Federal Reserve.
Apparently, at this point, the investment community doesn’t seem to have a lot of faith in the chairman of the Federal Reserve.
And since Mr. Powell has been the chairman of the Federal Reserve since February 5, 2018, for a four-year term.
It could be strongly argued that, over the past four years, Mr. Powell has earned the reputation he has among the investment community.
He has a record!
And, given this record, Mr. Powell has just won re-election as chairman of the Board of Governors of the Federal Reserve for another four years.
Looking to the future
So let’s move on to the future.
The big question is what will Mr. Powell and the Federal Reserve.
The next meeting of the Federal Open Market Committee meeting will not be until September 20th and 21st.
The expectation is that the Fed will increase the range of its policy interest rate at another time.
Then we go to November 1st and 2nd for the post meeting.
Another promotion?
And what about the Fed’s portfolio of securities?
The Fed has begun to reduce the size of its securities portfolio, but it will be a relatively long and arduous task. The Fed has no plans to sell securities to reduce the size of the portfolio.
The Fed will let securities mature out of the portfolio…and not replace all maturing securities.
Plans for this effort go all the way to 2024.
And plans to continue raising the Fed’s policy interest rate extend through 2023.
Sounds good, doesn’t it?
But in terms of market activity, that’s a long time.
Mr. Can Powell and the Fed hang in there?
The market says no!
Investors are making a substantial profit for the stock markets today.
Tomorrow, stock prices could go down.
Next week, stock prices could drop.
Next month, stock prices could fall.
What is disturbing are the words of Seema Shah, as quoted above,
“We’ve learned in the last couple of months that we can’t read too much into any broad guide.”
The Federal Reserve doesn’t want to be here.
First, when the Fed is doing its job well and the markets are running smoothly, the work of the Federal Reserve is never reported in the newspapers or on television.
The last thing the Federal Reserve really wants is to be talked about, reported on, and debated.
In the world we live in today, it seems as if the subject of the Fed appears in two or three newspaper articles, the New York Times and the Wall Street Journal. The Fed issue is on the evening news. The Fed topic is constantly bouncing around the internet.
The Fed has not performed well in recent years and as a result is always in the news!
And this is the future we have to face.
Mr. Powell and the Fed will have to live with that.
The investment community will have to live with it.
The behavior of Mr. Powell has only added to the “radical uncertainty” in the market right now.
The Fed is raising its policy interest rate by a historically significant amount … and for the second time in two months … and is expected to raise it again in September.
What will the Fed do next?
In a world of radical uncertainty, we cannot identify all the possible outcomes the Fed could come up with.
This is the creation of the Fed, and we, the investment community, have to live with it.
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