Dec 23, 2018

Trump's Fed chair isn't listening to the markets, or Trump

Illustration: Aïda Amer/Axios

We seem to have come to the end of one of the most astonishing bull runs in stock-market history, and there's very little indication that Fed chair Jay Powell particularly cares.

The bottom line: Powell will continue to make pro-forma noises about paying attention to financial markets. But he's not going to let Dow vigilantes dictate U.S. monetary policy.

  • From their low in March 2009 to their high in September of this year, stocks gained more than 280%. With dividends reinvested, the total return was 365%. That's 17.5% per year, annualized.
  • All along the way they were helped along by unprecedentedly accommodative monetary policy, along with maybe just the tiniest dash of irrational exuberance.

Now, interest rates are returning to normal, and stocks have fallen back about 15% from their highs. Valuations remain pretty healthy — the S&P 500 is trading at about 15 times earnings — and in general the stocks that have fallen the most are also the ones which had previously risen the most. Facebook, for instance, might be down 42% from its high in July, but it's still up more than 250% over the past 6 years.

The big picture: Powell is not an economist; he's a capital-markets banker. Weirdly, that makes him less concerned about markets than his predecessors with economics PhDs. Much of financial economics is based on the efficient markets hypothesis, which says that market moves convey important information. That causes central bankers to get worried when markets fall. Bankers, by contrast, are well aware that stock valuations are largely arbitrary, and realize that volatility is normal.

  • It's not healthy when stocks go smoothly and steadily upwards in the face of global geopolitical chaos, as they did for the first 18 months or so of the Trump administration.
  • Markets expect the economists at the Fed to cut rates (or at least stop raising them) whenever stocks decline by 10% or more. That, too, isn't healthy. The Fed has no mandate to boost the stock market, or to catch it when it falls — especially when the fall is simply a decline from frothy to sensible levels. (I'll have more next week on stock-market valuations.)

Between the lines: Axios' Courtenay Brown asked Powell this week about the way in which the market has reacted to his speeches. Previous Fed chairs took great pains to choose their words carefully, lest the markets read something into them that wasn't there.

  • Powell is different: he doesn't care.
  • Powell didn't answer Axios' question, which itself spoke volumes. He knows that the current hair-trigger market will jerk up and down on virtually any news, or none. That's not his problem.
  • Dion's thought bubble: Powell speaks much more frankly and in simpler terms than Yellen or Bernanke or Greenspan. Unlike Yellen and especially Bernanke, Powell doesn't feel like he needs to go back and clean it up after he's said it and the market took things the wrong way.

Go deeper: Why the Fed was right to hike.

Go deeper

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Lufthansa Boeing 747 passenger aircraft. Photo: Boris Roessler/picture alliance via Getty Images

Boeing will lay off 6,770 U.S. more employees as it seeks to offset the plummeting demand from the coronavirus pandemic and its year-long grounding of the 737 MAX, CEO Dave Calhoun told employees Wednesday.

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Biden compares "tragic" death of George Floyd to Eric Garner

Joe Biden at a virtual event last month. Photo: via Getty Images

Before former Vice President Joe Biden began his virtual event with Pennsylvania Gov. Tom Wolf Wednesday, he addressed the recent officer-involved death of George Floyd, a black man in Minneapolis.

What they're saying: Biden referenced the 2014 death of Eric Garner, an unarmed black man who died after a New York police officer used an illegal chokehold on him during an arrest.

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 10:30 a.m. ET: 5,618,829 — Total deaths: 351,146 — Total recoveries — 2,311,404Map.
  2. U.S.: Total confirmed cases as of 10:30 a.m. ET: 1,681,793 — Total deaths: 98,933 — Total recoveries: 384,902 — Total tested: 14,907,041Map.
  3. Public health: Fauci says data is “really quite evident” against hydroxychloroquine for coronavirus — Nearly half of Americans say someone in their household has delayed medical care.
  4. Tech: Zipline drones deliver masks to hospitals; vaccines could be next
  5. Business: The downsides of remote work could diminish recent gains — PPP failed to get money to industries and areas most in need.
  6. 🏒Sports: NHL unveils 24-team playoff plan to return from hiatus.
  7. What should I do? When you can be around others after contracting the coronavirus — Traveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

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Updated 1 hour ago - Politics & Policy