“On the wings of a snow-white dove, he sends his pure sweet love, a sign from above….”
To make it easy, the lyrics this morning are from the only band that might possibly understand the world at present – Madness. (And, I’m in not just referring to yesterday’s Fed Action, Brexit Shenanigans, European Gloating, but just about absolutely everything I can see from the window of Shard Mansions..)
Jay Powell has set free the white doves of lower rates for longer for ever? Fair enough, the Fed says it won’t hike this year, and maybe not next year either. And that’s the gospel truth right up to the moment it’s not.. which might come on the back of a global recovery, positive global politics, better weather, the end of trade tensions or whatever. But for now.. all is calm..
Smart move – the bottom line is the Fed was under no pressure to tighten in the current economic environment and amidst the current destabilising uncertainty – BUT, it did face a massive distraction if it acted aggressively.
The lack of ecstatic over-reaction to “lower for longer” in global stock and bond markets demonstrates a equal lack of conviction among investors. I don’t think they buy the no upside risk arguments. What the market perceives is the Fed is signalling a “tactical” delay of tightening policy – so not much really changes.