This weekend we discussed the possibility of Fed Chair Jerome Powell doing a 180 in today's testimony before the Senate Committee on Banking, Housing, and Urban Affairs.
Well, his performance so far has exceeded our wildest expectations: Powell has done not just one “180” but a series. A whole pirouette, if you will.
After telling us in his opening statement that most forecasters expect inflation to move down significantly this year. In other words, as Powell has said before Inflation is transitory. Today, he has disavowed that concept. Concluding that we should probably retire the word transitory.
Really?
You mean after months of assurance that inflation wasn't a real problem, that it would be over soon. Powell today says that inflation may be here to stay. And thereby agrees with most of Wall Street.
It was a staggering admission. And frankly took the Street by surprise.
But he wasn't done there. Regarding the Fed's supportive monetary policy, which rests primarily upon the twin pillars of low-interest rates, and Quantitative Easing. Which, by and large, are those multibillion bonds that the Fed purchases each month.
Powell came out and said, that the taper should be over quickly.
Translated: QE is going to be done much faster than everyone thought. The Fed's going to take away that part of the safety net.
You're on your own boys.
To say this wasn't what Wall Street wanted to hear is a real understatement. It hit like a ton of bricks. With all the equity markets falling below last Friday's lows.
You may have heard me extoll Powell's abilities as a salesman. And it's true. He is a master at navigating the halls of Washington.
But as a Market Timer, he really leaves a lot to be desired.
