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The Fed Is Playing a Dangerous Game

It was just two months ago that Jerome Powell set off a market panic by suggesting the FOMC would do what it thinks is right and let asset prices go where they may. 

They /Fed/ were promising at least two if not three more rate hikes in 2019. The stock market fell out of bed.

To understand what’s going on, we need to review some ancient history, and by “ancient” I mean December 2018. That’s several eons ago in today’s news cycle.

Powell’s predecessors had given the Fed an unofficial third mandate: defend stock prices as well as maintain low inflation and full employment. 

His comments that day seemed to reveal Powell had no interest in continuing that practice.
Powell has turned the other direction and is now bent on pleasing investors, the exact opposite of the impression he so carefully gave in December.

The Powell Put  Can it have short-term, market-friendly results? Absolutely. For longer than we might think? Assuredly. 

Can corporations continue to build up high-yield debt to unsustainable levels? They’re trying. 

As long as the music keeps playing, they will continue to dance.

John Mauldin March 1 2019

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