The Felder Report
MAR 12, 2018
The Fed, like any good cadre of politicians, put off doing anything that is the right thing to do if it causes any discomfort now, even if it pays huge dividends down the road. It’s the state of American politics. Better to avoid a pinprick now, even if the price is losing a limb down the road.
Fed members use the word “may” like a guilty criminal uses the word “hypothetically” when talking to his lawyer. “Hypothetically, if I did know there were 30 stolen handguns in the package I signed for…”
‘Asset prices may have become distorted relative to the economic fundamentals and the very slow pace of our balance sheet normalization may still be contributing to a buildup of various financial imbalances.’ - Kansas City Fed President, Esther George
Make no mistake. This is exactly what has happened and continues to happen. The Fed is way behind the curve, leaving extraordinary, ‘emergency level’ accommodative policies in place even while we are now in the third-longest economic expansion in US history. It’s madness.
For now, it seems the popular market narrative, reinforced by today’s jobs report, is that the economy finds itself in a “goldilocks” scenario: not too hot so that the Fed feels the need to cool it off but not to cool to put a damper on the uber-bullish analyst estimates of company earnings for the coming year.
However, if the narrative continues to shift from the “goldilocks narrative” (which appears to have peaked last year) into greater agreement with all of these companies pointing to inflation markets could be forced to rapidly reprice their current, rosy assumptions about fundamentals and Fed policy.