Markets traded higher Wednesday as investors shrugged off inflationary concerns (which, I argue in my recent piece “Cue the disco balls and bell bottoms” are quite real) and instead, decided to wait on a signal from Fed Chief Jerome Powell.
Investors want to make sure that the head of the Federal Reserve is still ready, willing, and able to accommodate these markets via low interest rates and money printing.
Powell speaks at the Economic Club of New York today via its webinar at 2pm Eastern this afternoon.
I suspect they’ll get some kind of promise to continue low rates. The Fed, under Powell, has already signaled that it’s okay with some inflation.
And, after all, have you ever known a Central Banker who didn’t love low rates? Or, who didn’t believe he or she had the ability to control the U.S. economy (and even global economy given our size) via the wave of an imaginary monetary wand?
There is tremendous pressure on Powell to stay accommodative. And though he doesn’t have the threat of Donald Trump blasting him on social media or on television anymore, he does have the pressure of the entire system watching him carefully — including his former Fed colleague Janet Yellen, who is now Treasury Secretary in President Biden’s administration.
Investors are hopeful there will be another large round of government spending. Biden, and other politicians, continue to insist more spending is necessary with Biden even going so far as to talk down the recent jobs report, insisting that if we stay like this we won’t reached last year’s unemployment rates for another 10 years.
If the markets see big stimulus from government, big stimulus from the Fed, a decline in COVID-19 infection rates, and a successful rollout of vaccines — than, what could be better?
But, Powell could soon decide the inflationary pressures are too much. Indeed, a former Clinton Treasury Secretary believes they are. Larry Summers recently cautioned against the risk of inflation, and got in hot water with the liberal media for doing so. Nonetheless, the inflationary pressures are real and if we see a massive stimulus from the federal government, how can we expect these additional low rates from the Fed?
Anyway, the market wants this party to continue. Risks, I suppose, are for another day.
In the meantime, investors remain hopeful for all the aide they can get, even if it comes in the form of a simple sugar high.
The hangover could get ugly.