To be, or not to be, that is the question:
Whether 'tis nobler in the mind to suffer
the slings and arrows of outrageous fortune,
or to take arms against a sea of troubles,
and by opposing end them: to die, to sleep
no more; and by a sleep, to say we end
the heart-ache, and the thousand natural shocks...
Prince Hamlet in "Hamlet" Act 3, Scene 1
On Wednesday of this week, the Federal Reserve will conclude its latest conclave and announce to a "market" with bated breath precisely what it is.
This is the only question the "market" wants answered, and it wants it answered via deeds - not words.
The scene from Hamlet aptly fits what should be taking place during this upcoming FOMC (Federal Open Market Committee) meeting, for this is both the time and place where the usual mealy-mouthed "Fedspeak" just won't cut it. In other words: all words and examples used to explain the current policy and signalling had better include a plethora of past tense verbs such as "paused" or "halted" and so forth. It must be one thing or the other.
Anything approaching terms like "the future" - as in "We will evaluate as we go along and come up with something at future meetings to possibly conclude ending something by end of year blah, blah, blah…" - is not going to work this time. The Fed is now in that "to be, or not..." moment. There is no middle ground this time. Period.
The issue now confronting not only the entire Federal Reserve, but rather Chair Jerome Powell directly, is that it is they that have allowed (and also reinforced) the current delusion that the Fed has "paused" anything.
I must repeat for the billionth time: the Fed has not halted anything. Nothing as in zip, zero, nada.
January's non-event for any interest rate move was baked into the "markets" long ago. A January raise was never anticipated or thought credible. The only reason why it needed to be adjusted for odds in possibility terms was because Mr. Powell, back in 2018, announced there would be a presser after every meeting going forward in 2019, i.e., an adjustment into the calculation models for a January hike went from, let's say, .01% probability to maybe .5% That's about it.
However, after the December debacle, both the mainstream business/financial media, along with the willing chorus at the Fed, made it appear as if there was some implied 50-fold probability that there would be a hike in January. And when the Fed didn't move? That now, in some way, constituted some mythical verification that the Fed had indeed "paused."
Again, January was never a serious consideration via Wall Street even as far back as early 2018.
But today (or should I say Wednesday) will be a far different matter for what the definition of "pause" truly means. For there has been one thing that has not been paused. And it's the only thing the "market" cares about, i.e., the Balance Sheet Roll-Off Process (QT).
Not only has the QT process not been paused, it's been running on "autopilot" - and - running at light-speed!
Since January, every business/financial media outlet with their assortment next-in rotation fund managers, Ivy League Ph.D economists, think-tank aficionados, buzzer-bangers and more has built this canard that the Fed has "paused." And because of this so-called "pause," the Fed has made it abundantly clear that it "has the market's back," so buy, buy, buy! After all, as the signalling goes, "Just look at these markets!"
I say: Sure, but what happens when the "market" has to deal with the reality of the moment on Wednesday? Why? Hint: there has been no pause. Period.
To reiterate, I have been stating this warning since January, when this idea of "pausing" or "capitulating" was first being presented as fact by all those mentioned earlier. As I said way back then, to wit:
As I've stated ad nauseam at every post meeting since the "autopilot" debacle there is, and will continue to be, $50Billion less per month for Wall Street to play with. Again: every - single - month.
Since there has been no declaration via the Chair that there has been any alteration to the process. And even reaffirmed that it was still going on as advertised, where the committee itself agreed and voted that it should continue on unabated means, that from now until March, almost $200Billion will be removed (generalization for example math, but you get the point) or allowed to be rolled-off until Wall Street has another glimpse into what happens next.
And "next" just might be another $100Billion (e.g., April) till the next meeting. Think about that, again very carefully.
- "Did he or didn't he?" January 2019
Again, for this point can not be made forcefully enough, as I have warned ad nauseam: there has been no "pause" of the balance sheet.
As a matter of fact, the "autopilot" sequence for the month of February was so that it actually exceeded the $50 billion quota by some $25+ billion! Meaning, the Fed needed to reinvest the overage as to stay true to the original plans of "autopilot." The "markets" received this confirmation just 10 days ago.
Now the "markets" are entering the "blackout" period for what shows to have been the only true other driver of recent "market" moves alongside of the Quad-witching expiry process, i.e., the corporate buyback window.
Hint: there goes anything left of the already pathetic volume measurements, no?
So now you have February confirmed for $50 billion, with March about to confirm another. If nothing is "paused" Wednesday, as I iterated prior, by April's meeting one would need to conclude that another $100 billion would have been pulled. The "markets" are already running on fumes, and I feel can't wait another month to "see." The Fed needs to deliver what the "markets" are anticipating in toto on Wednesday. No ifs, ands, buts or maybes will do. Again, period.
How important is what Mr. Powell declares during Wednesday's presser truly? Well, sticking with the Shakespeare theme, let's just say...
Anything inclining that there may be a "considering," or "looking at doing," and so on and so forth as in future tense as opposed to past, will be seen as having the same superstitious curse or effect of saying the word "Macbeth" in a theater, i.e., will cause a disaster.
All I'll say is: Buckle up!
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.