Thursday Follow Trough – Well-Dressed Windows Ahead of the Fed Minutes

Wow, what a comeback!  

Fed Chair Jay Powell said some words and the market jumped up over 2%, adding $2Tn to the global market cap in a matter of minutes.  He should say those words every day, right?  Actually, he didn't have to say anything as the Dow (/YM) began rising from 24,900 (already up from 24,800 at 5am) at 11am to 24,950 at noon – before the text of Powell's speech had even been released and, by 12:05, we were already up around 25,200 and we continued on to a high of 25,370 at the close, up 600 points for the day (2.4%).

The market's exuberance hinged essentially on a single sentence from Powell's speech:

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy--that is, neither speeding up nor slowing down growth. "

Rather than focusing on "still low by historical standards" the media chose to focus on the much vaguer "just below the broad range of estimates" which shows a complete lack of understanding of what a range is – whether intentional or otherwise.  Fortunately, we know exactly what range Powell is talking about as it's the Fed's famous "Dot Plot" that shows exactly what the range for rate expections is among the 12 Fed Governors.  

As you can see from the chart of Sept 26th, the RANGE of the expectations is from 2.25%-2.5% at the end of 2018 (we're at 2.125% now) but the RANGE next year is between 2.25% and 3.75% and, by 2020 – there is only one outlying dot that shows 2.25% while the middle of the range is about 3.25% – that's 4 quarter-point hikes from now.

Also, not at all covered by the media – Powell also had slides (as well as 14 other pages of text) and he was also concerned about the massive increase in Corporate Debt, now well above the economic collapse levels of 2009 and matching the post-crash levels of 2002.  The difference was, in 2002 and 2009 the Fed was able to LOWER rates significantly to reduce the stress of outstanding Corporate Debt but, without
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