Wondering About Raised Rates? Don't Even 'Think' About Asking

The Federal Reserve on Wednesday concluded its June meeting, and while no specific new policies came out of it, Chair Jerome Powell certainly gave us plenty to talk about. Here are my main takeaways from the meeting. Not Even 'Thinking' About Raising Rates In case anyone gets any bright ideas about May's strong job report changing the trajectory of Fed policy, Powell put that to rest. He said during the press conference, not only are we not thinking about raising rates, we aren't thinking about thinking about raising rates. Hopefully that wasn't a surprise to anyone, but it made for a strong soundbite anyway. Reinforcing this point was the Fed's dot plot, which shows that every member expects the Fed's target rate will be at 0% through 2021, and all but two think the same for 2022. That's what not thinking about thinking about looks like. QE to Continue at Current Pace There was some talk that the Fed might clarify the pace of quantitative easing (QE) buys. The Fed didn't do that, but it did say it expects to keep buying Treasuries, mortgage bonds, and government commercial mortgages at approximately the current pace going forward. Since March, it has slowly stepped down the pace of buying, as market conditions have improved. Now it is saying this stepping down is complete. I believe this opens the door to yield curve control being enacted sometime in the next couple meetings. More on that in a moment. Not 'At All' Trying to Direct Asset Prices At the press conference, Powell was asked a couple questions about whether stocks were overvalued. His response was striking. He forcefully, almost angrily, reiterating that his sole focus is on its employment mandate. He went on to say that doing some action to bring asset prices down would almost certainly harm employment, which he's unwilling to even consider. The upshot is this: The Fed is going to do whatever it can to get the economy hot again. If that's happening, Powell doesn't really give a damn if asset prices soar or drop. The idea that the Fed will fight asset bubbles may have died the same death as pre-empting inflation. Powell said of continuing to provide monetary stimulus: We're going to stick with this until the work is done. Fed's Sounding Somber While he was quick to express relief about the improvement in financial conditions as well as the strong May jobs report, overall Powell didn't sound any more optimistic than he did six weeks ago. He once again did his best to implore Congress to take more actions without specifically calling them out. At one point, he described the many lending programs and how they might help, but then said that the Fed has lending powers but not spending powers. The fiscal stimulus to date, especially the enhanced unemployment benefits, have been crucial to economic performance to date. He is definitely concerned that if these aren't renewed, there is downside risk to the economy. Read Between the Lines on Yield-Curve Control... In Powell's prepared remarks to kick off the presser, he went into some detail about its discussion around yield-curve control. It seems the Fed staff gave a presentation on the subject during this meeting, and presumably there was considerable debate. While the Fed apparently didn't come to a firm conclusion just yet, Powell wouldn't have spent so much time talking about it if it wasn't likely to pursue curve control. It is routine that the staff give presentations on various topics that might be in the zeitgeist. The Chair didn't have to highlight this discussion. He did so for a reason. Risk Assets Sell Off, Bond Yields Fall Right after the Fed's post-meeting release, stocks jumped, with the S&P up 16 points on the day around 2:20 p.m. It all came crashing down as the presser went on, and stocks eventually finished near the lows. It looks like energy and financials led the way down, while growth sectors were the outperformers. Meanwhile bond yields fell, led by the seven and 10 year. To me this says that the market underestimated how long rates would stay extremely low, and that companies with consistent growth will remain difficult to find. The Fed isn't going to get in the way of a bull market. But that doesn't mean all companies are going to be winners.

Wondering About Raised Rates? Don't Even 'Think' About Asking

At least don't think about asking Fed Chief Jerome Powell. The Fed concluded its June meeting, and here are my takeaways.

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