A Real Person at the FED
The New Fed Chairman
Yesterday we got to see our new FED Chairman in action and I have to say I am the most encouraged in the Fed leadership since Paul Volcker left. Here is what I see as a real person, not someone who tries to defend some kind of economic model that he or she developed in a PHD program. If any type of person can move us to some type monetary normalcy he at least has a leg up on a lot of people.
Here are the Upsides that I see
It would appear that what he says is what he believes and is based on real world experience, not some book. The road back to Normalcy will not be easy after the reigns of Greenspan, Bernanke, and Yellen. This should lead us back to some sort of real supply / demand economics where “funny money” artificiality becomes something for the history books. Traders and analysts that have grown up on “funny money” economics may find they will be tested by a new real world, one that their algorithms may scramble in for relevancy. I think the much talked about goal of the Fed, stability, may after an initial shakeout due to the current unstable situation, find a way to happen through real growth after money gets redirected from speculation.
And what about the Downsides
Chairman Powell’s decisions will to a certain extent be driven by what he sees and believes. At the moment he appears to believe in the Tax Cut Growth Story, that may provide the first real test when it really doesn’t happen.
Adding to post at 10:00 AM CST
I have been asked this morning, what does this mean for the markets. Well first, the area that has benefited the most from FED policy since the Great Recession are stock prices, so yes they will be affected. Areas that were less affected by Fed policy, markets that basically reflect supply and demand, like commodities, will be less affected and as we have shown recently the CRB commodity chart is just bouncing up against the trend line off the 2007 highs, nothing like the stock charts. The Dollar will just play off interest rates and we still see a flattening of rates with 30 year rates eventually headed to a radical under 2 % level and maybe even 1 % level.
And Gold, it is just something to hedge political and geo-political risk which is on an upward trend. And, interest rates jumps just provide short term buying opportunities in Gold.