Yesterday, following the Fed decision, stocks lost ground. That is not a reason to be concerned, but rather any pullback that results should be seen as an opportunity, at least in the short term.
It wasn’t that long ago that the Fed was a very big deal. In the years following the recession, every pronouncement from Bernanke, and then Yellen, were obsessed over. The Fed’s decision, the wording of the statement, the press conference, and the dot plot were all discussed at length for a week or so before, and for at least as long after, the monthly FOMC meetings.
That resulted in an almost continuous loop of Fed watching. Go back a bit further to the Greenspan era, when the Fed liked to surprise the market with its rate decisions, and attention paid was even greater.
For decades, I, as a market watcher and participant, have hung on every word uttered in the runup to a meeting, in the decision, and in post-meeting analysis.
Yesterday, however, when the FOMC meeting concluded, the decision was released, and Jay Powell gave his press conference, I didn’t even turn on the T.V.
I guess it is a bit arrogant to say that was because I was completely confident that I knew what was coming, but ultimately that is why I had so little interest in what was done and said. I don’t claim to be particularly smart or some kind of “Fed Savant” though. It is just simple logic that made anything other than “no change, no news” just about impossible yesterday.
Assuming you, dear reader, felt the same, it is possible that you missed the news. So, let’s recap: Fed Chair Powell announced no change to rates (other than a tweak to what it pays banks on excess reserves, a move designed to keep the fed funds rate within the target band) and, more importantly, no plans to move them up, or down, in the near future.
In other words, the gist of what was said was “nothing to see here, move along please”.
Even so, the stock market reacted by falling, with all the major indices losing between a half and one percent on the day. That drop was, as post news moves so often are, about expectations going in. Somehow, some traders had convinced themselves that Powell, as a Trump appointee to the Chair, would be in awe of the president’s copious and often vicious tweeting and do what his benefactor wished, not what was good for the economy.
The trouble with that view is that it completely ignores who Powell is. He is a lawyer and banker above all else. He was originally appointed to the Fed’s board by Barack Obama. Yes, he served at the Treasury under George H. W. Bush, but if he has any loyalty left to the memory of that President, that would probably make him even less likely to obey Trump. He is an “old school” Republican.
Politics aside, though, Powell is a central banker and a pragmatist. He worked for the self-explanatory Bipartisan Policy Center for a few years, during which time he advocated strongly for raising the debt ceiling during that particular episode of Congressional dysfunction. He is nobody’s extremist or ideologue.
I don’t, however, want to focus too much on the man. What was important yesterday was the message, and that message was very clear. To this point, whether you choose to give credit to Powell or either of his most recent predecessors, the Fed has got it right.
The economy is in a remarkable place right now. Unemployment is low enough to be considered as representing full employment, inflation is low and real wages are rising, growth is slower than some would like, but steady and unwavering. Valuations are a bit above average but look nothing like previous bubbles. There are risks, of course, but they either come from outside the U.S. or exist in some undefined future. Until that changes, any pullback, and particularly one based on a fallacy as was this one, is a buying opportunity.