- The Fed surprise rate cut shakes confidence in managing the next crisis.
- A rate cut of this magnitude after the most bullish day ever on the DJIA is a bad idea.
- Volatility has returned after the decision, a sign that the market is not taking it well.
The Fed has just announced a cut in the benchmark interest rate of 0.50, leaving the rate at 1%-1.25.
After a G7 meeting that had left the market unsettled, the Fed announced a rate cut as a balm to calm nerves of investors… but were investors showing any nerves at all?
The S&P 500 was moving comfortably above 3,000 points after yesterday's substantial gains.
As you can see on the charts, the price was recovering the trend line pierced last week; there was a reason for hope. What is the motivation for this unexpected decision?
What do central bankers know that the market does not know yet?
Sticking out your chest when you don't have to has always been lousy business for central bankers.
If Draghi or Bernanke knew how to use words to stop the bleeding of the Great Depression, throwing out the window 0.50 basis points when the patient does not show severe signs of weakness is the first course of “how to be seriously wrong.”
The market is now going to ask itself the same question, and no answer is going to stop bears from going hunting. Winter is over and they are awake.
If Powell knows something that others do not know, and that has led him to make this decision, blood is going to dye the covers of the financial media.
If Powell has done this as a preventive measure, he is showing clumsiness in his management of time. If the Fed president cuts 0.50 basis points now when nothing has happened that did not occur in 2018 and 2016, what will he do with a 35% fall in the markets? And with a Q1 GDP of 1.2% (previous Q4 2.1%)?
The bears have already smelled the blood and the high volatility pot has just opened. The next few days the market is in the hands of the great titans fighting the final battle.
It's not the time for the small players, the time will come to collect the spoils left by the loser.
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