The constant debate between television economists and FinTwit commentaries (Financial Twitter) is that the statements and papers submitted by Federal Reserve members, including the Fed Chair, are only relevant in the spectrum of an ongoing or potential major financial crisis. However, it is this author’s opinion that the current chairman, Jay Powell, inherited a slow motion train wreck from his two predecessors Ben Bernanke and Janet Yellen, which makes every word spoken or written at Jackson Hole more important than ever.
To understand what has been happening after the ten year period from 2008 to 2018, the latter being the year Powell took over, it is worth delving into key statements and summations from each of Jay’s speeches and reviewing the market reaction afterwards.
I. August 24, 2018
Federal Reserve Chairman Jay Powell’s speech:
Monetary Policy in a Changing Economy
This statement is the key excerpt for reference at that time and now, this current era of economic dislocation.
Times were good. The initial shock of a Trump election win seem to have stabilized and resulted in moderate economic growth. The tax policies brought some degree of relief to consumers and the initial financial risks seem to have faded allowing for increases in greater speculative risk in markets.
Unfortunately for Chair Powell, his predecessors failed to tell him about the lurking financial crisis in the banking system which was simply postponed from 2009 and serviced by the taxpayer. In October of 2018, just two months after the speech, equity markets caught a whiff of this problem and in December began to liquidate positions in anticipation of a 2019 financial crisis.
If it were not for a leaked statement from the Federal Reserve on Christmas Eve of 2018 reassuring the markets that QE was not dead and the Fed would still backstop the major bank’s garbage collection, odds are America would have experienced a major recession in 2019. Instead the Fed and the rookie Chairman Jay Powell simply postponed the day of reckoning.
II. August 23, 2019
Chairman Powell’s speech had a definitively different tone in 2019:
Challenges for Monetary Policy
The following excerpts might justify renaming that speech “Arrogance of the Gods” because the warnings were there.
The tools however, were built on models conceived in the early 1980’s and during the 2007-2009 GFC.
The Fed and Jay Powell determined the stability risks to be “moderate” however others disagreed. Mervyn King, the former head of the Bank of England stated during an IMF presentation in October 2019:
“Another economic and financial crisis would be devastating to the legitimacy of a democratic market system,” he said. “By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis.”
-UK Guardian October 20, 2019
The equity markets sniffed this out also during the Jackson Hole speech until the October FOMC statement which was interpreted as “lower for longer.”
III. August 27, 2020
New Economic Challenges and the Fed’s Monetary Policy Review
The S&P 500 chart displayed above was cut off by this author to not include the Covid insanity which happened in February and March of 2020. But heading into Jackson Hole, WY, the “virtual” symposium was interesting as hell, needless to say.
Unfortunately for the Fed, political instability at that moment in conjunction with economic instability due to the pandemic created the perfect formula for mistakes on all sides to be made. Thus the markets viewed this new period of economic distortion poorly as none of the institutional models could interpret how to react to monetary policy expanding inflationary policies while fiscal restraints were non-existent politically.
The die was cast with the October 2020 FOMC statement which said:
To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations.
Add in the election of a leftist government by the American citizenry just two weeks later and the fuse was lit for an inflationary disaster.
IV. August 27, 2021
Monetary Policy in the Time of COVID
If anyone ever told me that this was going to work out for Americans worse than Jay Powell, then that Fed Chair would have to have been Bernanke or Burns. In his Jackson Hole speech, this statement demonstrated the blinders of ancient Fed modeling which left the door open for the nightmare that followed.
Needless to say, he failed that test also. When I penned a piece in August of 2021 titled “The Everything Crash of 2021,” I had no clue it would become the slow motion crash that has permeated throughout our society for the last two years and is still ongoing. However, the stock market reacted as one would expect with the blessings of QE∞ from the Fed.
The fuse was lit. The disaster obvious to everyone since May of 2021. Real inflation, 1970’s style inflation had arrived.
V. August 26, 2022
Thoust shall not anger the monetary gods.
Monetary Policy and Price Stability
If there was ever a speech for the ages in Fed lore, this one was it.
He even looked angry. But was he serious this time?
Needless to say, Chair Powell had to say this to try restore the Fed’s credibility. But the equity markets were not 100% certain he meant it.
Despite all of the political posturing, the speeches, the outright lies (you really don’t believe your eyes do you?), the S&P 500 has yet to revisit it’s all time highs. The Federal Reserve has lost he faith of the masses and the investors are just tagging along praying that “this time” their brokers and television carnival barkers will not screw them over.
VI. August 25, 2023
There is a chance, albeit slight, that Jay Powell has learned a Greenspanian lesson to baffle the befuddled boobs with broadsides of BS. Odds are though, because he believes he is smarter than the markets, the elites in DC, and the masses he’ll make a speech of great consequence and once again misread the room. Inflation is not under control by any realistic measure as disinflation does not result in deflation at current levels, which means that prices will remain higher for longer, further penalizing the middle and lower classes of our society.
Prepare for impact everyone and yes, another classic Federal Reserve monetary policy blunder.
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