Date: June 16, 2021

Fed Meeting Ending – No Fireworks Expected

The Federal Reserve concludes its two-day meeting today. The stock market model is for plus or minus 0.50% until 2pm and then a rally. There are several historical trends which point to higher prices today based on stocks not being at new highs as well as market action so far this week that was not strong. If stocks rally today, especially after the 2pm announcement and Powell’s tea and crumpets with the press, there may a trend calling for mildly lower prices over the coming few days. Stand by.

The “big” 2pm announcement is that they are leaving interest rates the same and not beginning to taper their purchase of bonds just yet. That will be a surprise to no one. The much bigger event will be Jay Powell’s press conference where his every word and facial expression will be analyzed for clues about when their taper might begin. For the life of me, I cannot understand how some in the media and punditry are pumping this meeting as generationally important.

I think it’s insane that the economy is seeing its strongest growth since Reagan was president and the Fed has had their pedal to the metal for more than a year. The economic crisis is over. There is no debating that. The economy is soaring. Wages are jumping. Inflation is hot. The economy doesn’t need $120 billion of newly printed money every month. Sorry, but that’s ridiculous.

Where does this money end up? In the markets to produce the wealth effect. I find it so odd that Janet Yellen, Powell and the Biden administration talk so much about income and wealth inequality, yet their playbook is all about inflating asset prices which benefits… Wait for it… The wealthy Americans with assets to invest.

And with the housing market at all-time highs and feverish growth and speculation, someone a lot smarter than I may be able to understand why the Fed is still buying $40 billion of mortgage backed securities each and every month. This isn’t a political issue. It’s not left versus right or red versus blue. It’s monetary common sense.

Pivoting for a minute to Powell and Yellen, I have to give them credit, though. Bond yields peaked two months ago, even though two very hot inflation reports ensued. They were right and many people were wrong, at least for now. My guess is that the Fed is banking hard that inflation literally just peaked and will moderate over the coming months. That is certainly what the bond market is saying. My thesis says that bond yields will bottom during the summer and then head higher as another leg of inflation begins to percolate.


Paul Schatz, President, Heritage Capital