Market Watch: The Fed Total Capitulation is a Bad Omen for the Stock Market
Article by Sven Henrich in Wall Street Market Watch
Let’s be very clear what Wednesday’s full-frontal capitulation by the Fed means: It’s coming. The next recession that is. It’s just a matter of the how and the when.
Now mind you, the Fed will never, ever overtly tell you a recession is coming. They can’t. Their underlying primary mission is to keep confidence up.
A Fed predicting a recession would cause all kinds of havoc in capital markets and almost certainly bring about a recession. So they won’t tell you, but their actions speak loud and clear.
First understand what the capitulation means: It means all their 2018 statements of optimism and predictions of raising rates in 2019 and previous insistence on a balance sheet roll-off being on “autopilot” were all wrong. Reality and markets rolled over them. They didn’t see the slowdown coming, and only after markets dropped 20% in December did they change their policy stance and have now cemented a dovish stance for years to come.
However if markets sell off over the next few weeks and months, central banks may have lost control. They are already all dovish; they can’t surprise on the dovish side any longer. That carrot has been removed by Wednesday’s Fed capitulation. All they have left is QE4 and rate cuts to come. And those will come at the point of either new market lows and/or deteriorating data.
To read this article in Wall Street Journal Market Watch in its entirety, click here.