Thank you Dallas Fed President Robert Kaplan for all you have done to try to avert the coming end-of-cycle recession that the stock market is signaling in every single session, a chorus so loud that it is now including the credit markets, too.
All day we will hear a back and forth debate about whether in last night's conversation with Kaplan Fed Chief Jerome Powell has grown more dovish from his previously hawkish stand on the economy.
Talk about a false dichotomy involving irrelevant birds of a feather.
What matters is that instead of a general journalism practitioner Judy Woodruff asking Jerome Powell in a long-winded and totally unscripted talk about the economy - the fabled October 3rd interview that started this slow-motion train wreck of a bear market - we had a thoughtful discussion between two thoughtful people about the hazards of raising the Fed funds rate too fast and too often.
Mind you, if you parse every word of what Jerome Powell said last night at the Dallas confab, you, too, will miss the big picture, which is the context of the questioning.
Kaplan did not ask about runaway inflation. He did not ask about how to be sure that the economy doesn't overheat. He did not ask about rising wages.
His questions were almost all designed to show that Jay Powell is growing very concerned about the worldwide slowdown coming here and how he was cognizant that the rate hikes and the bond roll-off are causing a tightening that could be more powerful than he previous thought.
Kaplan's questions allowed Powell to walk back his sadly intemperate comments of early fall that seemed to be almost blithely oblivious to some of the more worrisome data out there. So many CEOs have told me, both online and, more importantly, offline about how quickly things have cooled. So many of them are baffled that we could find ourselves in the late cycle dilemma that isn't supposed to occur so soon. They come on to tell me that. To say something. To warn.
Now let me go back 11 years for one moment. Eleven years ago I began to hear the same kind of talk about how the Fed seemed so out of touch with what was happening on Wall Street. My sources were so damned good back then, good because I was part of a diaspora of Goldman Sachs people that had sources pretty much everywhere and because I had grown up with people who were now running the very joints we started at 20 years before that moment.
They came to me. One after another. To say something.
It meant nothing.
I was laughed at.
It was mortifying. But I was right. I did my best. And I made a resolution. If I thought we ever got back into one of these situations again I would be vocal about what could happen, even if I knew it would not be as serious as the Great Recession. After all, there are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc, and that's what is about to happen here. That's what the markets are saying. That's what the CEOs are worried about offline.
After last night I know Jay Powell gets it, too. He does not want to be part of the late cycle madness we keep hearing about. He wants people to know that he now gets there is another side, the slowing side, the side with cracks, the side that Robert Kaplan was telling him about in the questions he asked.
Is it too late? Yes if we get four hikes. No if we get one. Powell knows now that normal isn't the goal because no one knows what normal is these days anyway. He knows his goal is to not hasten the so-called end of cycle talk that pretty much everyone I hear and talk to accepts as the outcome of his Fed fund tightenings and the President's autopilot tariffs.
Thank you, Robert Kaplan, for giving Powell the opportunity to walk things back without ever directly contradicting himself and looking foolish for doing so. We know Powell's now concerned that we actually could be at the end of a cycle of growth. That's a soft reversal of his position just one month ago, when he was so wedded to the explosive growth conceit. That's all you can ask for.