The much anticipated March FOMC minutes were released today (last Wed), and the minutes concluded exactly what I predicted in my last post titled “Is the Fed Trying to stop a “Market” that has gotten ahead of itself”. In it I said that the only reason they were raising rates unexpectedly is because they are trying to slow the bubble from getting any bigger.
The minutes confirmed that the February ‘out of nowhere talk’ of a rate hike, which led to a March rate hike, was all due to stocks and many other assets classes being a bubble. FOMC officials are now openly admitting that their disastrous policies have created the largest asset bubbles in history, which has never been done before. On multiple occasions in years prior, many Fed officials, including former chair Greenspan, have openly said that it was very hard to spot asset bubbles in advance.
Now they are openly saying that they are seeing bubbles. Many current Fed officials share that same stupid viewpoint as Greenspan, including Kashkari, Fisher and Powell. Powell, just this past January at a conference in Chicago, said “low rates can lead to excessive leverage and broadly unsustainable asset prices – things that we watch carefully for and do not observe at this point.” So it was surprising to see the following In today’s minutes from the March meeting:
In their discussion of recent developments in financial markets, participants noted that financial conditions remained accommodative despite the rise in longer-term interest rates in recent months and continued to support the expansion of economic activity. Many participants discussed the implications of the rise in equity prices over the past few months, with several of them citing it as contributing to an easing of financial conditions. A few participants attributed the recent equity price appreciation to expectations for corporate tax cuts or to increased risk tolerance among investors rather than to expectations of stronger economic growth. Some participants viewed equity prices as quite high relative to standard valuation measures. It was observed that prices of other risk assets, such as emerging market stocks, high-yield corporate bonds, and commercial real estate, had also risen significantly in recent months. In contrast, prices of farmland reportedly had edged lower, in part because low commodity prices continued to weigh on farm income. Still, farmland valuations were said to remain quite high as gauged by standard benchmarks such as rent-to-price ratios.
And also this major point:
In addition, a number of participants remarked that recent and prospective changes in financial conditions posed upside risks to their economic projections, to the extent that financial developments provided greater stimulus to spending than currently anticipated, as well as downside risks to their economic projections if, for example, financial markets were to experience a significant correction. Participants also mentioned potential developments abroad that could have adverse implications for the U.S. economy.
Wait what? Didn’t Yellen herself say in June of 2016 that the Fed doesn’t target stock prices. Yes she did. That’s what makes this whole circus truly funny. Their polices of QE and years of ZIRP were to supposedly help create growth, and get the economy back on track. It was the “tinfoil hat conspiracy theorists” who said from the beginning, that the experiment that the fed was embarking on would not help the economy, but rather help the stock market and Wall Street.
Even four former fed officials, Richard Fischer, Thomas Hoenig, Charles Plosser, and Jeremy Stein shared the same view as these evil conspiracy theorists. Plosser put quite well in an interview for the documentary “Money For Nothing” by saying: “Stimulating the economy through monetary policy really does almost nothing to contribute to low unemployment rates or high employment in the long term. Printing money doesn’t produce goods and services, it doesn’t hire people.”
But this is not the first time the Fed has warned that stock valuations are high, but it was the first time that they admitted that they have created, as Trump said, a Huge Bubble. Sometimes it can take a while, years in this case, for the people out of touch with reality who are put into positions to fix the economy that they destroyed, to finally see reality.