Powell still didn't listen....Mr. Market obliges with a left hook to his jaw.

In my last post I said that the Fed wasn't listening to the market and if they continued not to do so, things could get really bad. Well, despite collapsing oil prices, weakening US housing, emerging signs of stress in the credit markets and ongoing weakness in the global economy, the Fed still hiked rates in December and softened its stance only marginally implying 2 hikes next year rather than 3 and no change in its autopilot plan to unwind QE. The market is rightfully now worried that the Fed is in on track to make the classic mistake of tightening policy in the face of weakening growth prospects which in the past has led to  recessions. I know Trump didn't do Powell any favors by continuing to criticize him on Twitter and urging him not to raise rates, but Powell could have just hiked in December  and said "since the last time I addressed you, we have seen some signs of decelerating growth and a marked decline in short term inflationary pressures.  As such, we are going to be much more flexible with our original plans to hike rates next year and unwind the balance sheet".  If he said that he would put Trump in his place and give the Market the assurance that it was looking for without boxing himself into a corner. Instead Powell decided to play the tough guy and show Trump and everyone else who's boss. Well, Mr. Market showed Mr. Powell who's boss

The good thing about the market declining this hard is that it creates awareness to the authorities that something could be wrong whereas a gradually declining market could give way to complacency - like  the frog in boiling water vs gradual warming water analogy. Powell has come under tremendous fire. Given the market's reaction and heavy criticism of him, he probably realizes that he was wrong and somehow now has to come out and backtrack on his stance without losing too much face....and he needs to capitulate soon.

I will post more soon,