"Cheated" Wall Street

 These days, the market is undergoing turmoil and it seems the panic has suddenly returned and jumped to some extreme level not seen for months. So what's the culprit? Well, we all know that Wall Street is heavily influenced by the Fed and they believe what the Fed is telling them. But in reality, Wall Street has been "cheated" by the Fed, or more precisely by JPowell constantly. Here is what is happening now:

One month ago, Wall Street’s expectation for a 50-basis-point hike in March was just 9.2% due to what Powell has convinced them of a softening Fed policy upcoming. However, right now, it’s exploded to 77.9%. 

From CNBC:

[Earlier this week] Fed Chairman Jerome Powell told a Senate committee that if inflation data stays hot, the central bank likely will raise rates more than it had expected and at a faster pace.

Prior to that, Powell’s recent remarks had indicated that he was seeing signs of disinflation in the economy and had hopes that the Fed could at least hold the size of its future rate hikes to 0.25 percentage point, or 25 basis points.

“Let’s not have a new layer of policy-induced volatility on top of things. But that’s what we are getting,” said El-Erian, chief economic advisor at Allianz.

“It’s a flip-flopping of policy guidance” …

El-Erian said much of the economic anxiety can be laid at the feet of Fed officials, who he said should have held to their more aggressive hikes rather than the 25 basis point increase approved Feb. 1.

“If you stay at 25, you fall further behind on the inflation front,” he said. “It’s a hole that they dug for themselves, and they keep on digging.”

Actually, this is what Powell has consistently being doing!

Quote from Josh Brown, CEO of Ritholtz Wealth Management:

Now listen up and listen good. 

Last May 4th, Fed Chairman Jay Powell told a press conference that “A 75 basis point increase is not something that the committee is actively considering.”

Five weeks later, the Fed hiked rates by 75 basis points. Then he did another 75 basis points, then another 75 basis points, then another 75 basis points. Four in a row.

So today, when Powell goes out of his way to tell you how high rates are going to go and for how long they’ll stay there, remember that he doesn’t even know what they’re going to be doing next month, let alone by the end of the year.

The Fed’s forecasts are as worthless as anyone else’s. That’s why they say they are “data dependent.”

Invest like an adult, not a child who believes in clairvoyance.

Actually beyond Powell, it's not like the Fed has a good track record...

• It kept interest rates low in the 1920s. That helped inflate the 1929 stock market bubble. Then, it made the Great Depression worse by jacking rates up too quickly.
• The Fed didn't fight inflation hard enough in the early 1970s. Then, once it took inflation seriously, it caused two recessions – one beginning in 1980 and another starting in 1981.
• Decades later, then-Fed Chair Alan Greenspan's loose monetary policy contributed to the dot-com bubble. And the Fed's policies after the dot-com crash contributed greatly to the housing bubble.
• Now, the Fed is likely making another big mistake – either by not hiking rates fast enough or by hiking them too fast. It's hard to tell at any given moment.
  

We'll have the next Fed meeting in less than two weeks. For sure we will see a lot more volatility in between as Wall Street is still trying to get a sense of what is coming up from the clueless Fed!

I don't know what will look like one week from now but for early next week, I bet the chance is very high for a sizable rebound due to extreme panic and oversold conditions we are seeing now.