Recession is coming, and first-quarter earnings will tell us how quickly
Let’s be very clear what Wednesday’s full-frontal capitulation by the Fed means: It’s coming. The next recession that is. It’s just a matter of the how and the when.
Now mind you, the Fed will never, ever overtly tell you a recession is coming. They can’t. Their underlying primary mission is to keep confidence up. A Fed predicting a recession would cause all kinds of havoc in capital markets and almost certainly bring about a recession. So they won’t tell you, but their actions speak loud and clear.
First understand what the capitulation means: It means all their 2018 statements of optimism and predictions of raising rates in 2019 and previous insistence on a balance sheet roll-off being on “autopilot” were all wrong. Reality and markets rolled over them. They didn’t see the slowdown coming, and only after markets dropped 20% in December did they change their policy stance and have now cemented a dovish stance for years to come.
Wednesday’s capitulation was so complete and even more dovish than markets had expected. How scared is the Fed? How scared should markets be? What are they seeing that forces them to not only halt the balance sheet roll-off, but to only project a token rate hike for 2020, in effect ending the rate-hike cycle?
Read the full article by Sven Henrich at Marketwatch