Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Perception of Powell Put in Place – QE4 Looms

Interest-Rates / Quantitative Easing Mar 02, 2019 - 11:18 AM GMT

By: EWI

Interest-Rates

By Murray Gunn

For better or worse, the markets perceive that Fed chairman Powell has showed his hand.

The recent Federal Open Markets Committee (FOMC) minutes of the January meeting revealed almost unanimous agreement to announce a plan soon for ending the Fed's policy of balance sheet reduction. This is the first step in an inevitable march towards the fourth round of quantitative easing (QE4).


If any more evidence were needed pointing to the fact that Fed policy is led by the markets, this surely is the icing on the cake. Stock markets tumble in the fourth quarter and, in January, not only does the Fed signal a reversal in its interest rate path, but the FOMC members have a collective buttock clench over its policy of reducing the trillions of dollars of new money created after the financial crisis of 2008. Music to conventional analysts' ears. The "Powell Put" is in place. From this moment on, whenever stock markets fall, the buy-the-dippers will be full of confidence thinking that the Fed will come to the rescue.

And therein lies the problem.

You see, it's all about causality. Or more succinctly, the perception of causality. Most market participants think that the stock market rally since December has been caused by the reversal in Fed policy. Not so. It was the decline in stock markets during the fourth quarter that caused the Fed's U-turn. FOMC members are human. They have emotions. They herd, just like the rest of us.

The Socionomic Theory of Finance noted QE's impotence with respect to moving market prices. Chapter 2 (read an excerpt here) shows that stocks did not respond commensurately to the Fed's quantitative easing program. And forget about commodities. In July 2008, just two months before the onset of QE, commodity prices started their biggest bear market since 1932. As the author Robert Prechter noted, "Anyone applying exogenous-cause thinking to these data would have to conclude that QE worsened the collapse in commodity prices."

Nevertheless, the fairytale of central bank policy dictating how financial markets and the economy perform persists. This will last until that ephemeral thing called confidence ceases to exist. In the next downturn, or the next, when QE4 is seen to make no difference whatsoever, at that point the market's perception of the omnipotent Fed will falter. When it does, when markets come to the realization that the Fed is not the "secret sauce" that keeps stock markets going up, the fallout will be cataclysmic.

For more on monetary policy and market prices, read an excerpt of chapter 2 of The Socionomic Theory of Finance here.

This article was syndicated by Elliott Wave International and was originally published under the headline Perception of Powell Put in Place – QE4 Looms. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in