While Donald Trump continually attempts to throw his criticisms at Fed. Chairmen J. Powell, investors can’t help but wonder what problems the Federal Reserve really has. In an amazing interview with Druckenmiller on Bloomberg, Druckenmiller points out that Trump’s tweets initially has forced the Fed. Chairman in between a rock and a hard-place. Where the Fed can either A) negate Fed credibility by raising rates while being data dependent, or B) not raising rates, and again diminishing the credibility by appeasing the president.
J. Powell had started his new job during a bull market, hence Jan. 2018 the SVXY was roughly 472.44. Also, the 7 trillion in additional market cap, the Fed had realized it could begin to attempt to unwind its balance sheet due to the acceleration of the economy.
Unwinding the balance sheet means that the Fed will no longer maintain its asset purchasing program, and it will begin to allow the debt to roll off. This, initially, should send interest rates higher and higher. Since rates are rising, investors are expecting a slowdown in equity and an increase in capital inflow to the dollar. Especially since some international central banks are negative. If the United States was capable of unwinding its balance sheet, it would also mean that the rounds of asset buybacks over the last crisis was successful. Continue reading →
Current Market Dynamics 