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QE Debate: Powell’s Comment On “Resuming Balance Sheet Growth”

Summary:
Some interpreted Powell’s statement to mean more QE. There’s a strong clue Powell meant something else. OK, but …. What did Powell Mean? Reminder: it is normal for the Fed's balance sheet to grow gradually. This is what he means. Not resumption of QE, as some have assumed. https://t.co/vUC3peXwrz— (((Frances Coppola))) (@Frances_Coppola) September 18, 2019I confess, I thought Powell was talking about QE, but I did not see the exact quote. Powell said “organic growth”. I believe Coppola has the correct intent. Intention vs Reality However, Coppola’s point is mostly moot. What the Fed thinks it will do and intends to do, typically miss the mark badly on what it actually does. The Fed “intended” to dramatically shrink its balance sheet. Look what happened. Look at a

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QE Debate: Powell’s Comment On “Resuming Balance Sheet Growth”
QE Debate: Powell’s Comment On “Resuming Balance Sheet Growth”

Some interpreted Powell’s statement to mean more QE. There’s a strong clue Powell meant something else. OK, but ….

What did Powell Mean?

I confess, I thought Powell was talking about QE, but I did not see the exact quote. Powell said “organic growth”.

I believe Coppola has the correct intent.

Intention vs Reality

However, Coppola’s point is mostly moot.

What the Fed thinks it will do and intends to do, typically miss the mark badly on what it actually does.

The Fed “intended” to dramatically shrink its balance sheet. Look what happened.

QE Debate: Powell’s Comment On “Resuming Balance Sheet Growth”

Look at a Dot Plot of interest rate expectations from 2017.

Dot Plot December 13, 2017

Fade This Consensus

That was my precise comment at the time.

Some FOMC participants actually believed the Fed would hike to over 4.0% by 2020 (next year!). The majority believed rates would be over 3.0%.

QE Debate: Powell’s Comment On “Resuming Balance Sheet Growth”

Fed’s Intended Meaning

So what?!

The Fed may do a brief period of “organic” expansion (which by the way can mean anything the Fed wants), but I propose more QE is coming whether the Fed “intends” to do so or not.

By the way, we really do not know what the Fed “intended”. Perhaps the the Fed wanted to open the door for more QE later but without alarming the market of that.

Mike Shedlock
Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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