He Knows
Last week we found out that Dallas Fed president Kaplan knows that the Fed is creating excess and imbalances in stocks. Yes, bloating the Fed’s balance sheet by over $400B in four months has a massive impact on stock markets. And billions of repo liquidity unleashed each day can be seen impacting the daily action as well (see: Repo Lightning).
So what’s Jerome Powell have to say about all this? Silence. Not a word. Of course he doesn’t have to because the crack reporters never confront him on the issue in his post Fed meeting press conferences. Bubble away accountability free. Why bother asking the hard questions? That may just get you disinvited from the next press conference. Too strong of an assessment? I let you be the judge, but why are the hard questions not asked when it matters?
But actually we don’t need to wait for the answer from a press conference. Why? Because we already know the answer and the answer is: He knows.
Powell knows exactly the behavior he’s instilling in investors, the artificial levitation of asset prices and the disconnects and dangers that is poses.
All one has to do is dig in the Fed minutes from October 2012. Pages 192-194. It’s all there:
“I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.
First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated.
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