Stock market action curious before Fed Reserve afternoon move

As I wrote Tuesday I believe the Fed will raise the Fed Fund Rate this afternoon to 2.5%.

However my spidey senses were piqued yesterday afternoon when the Dow soared more than 180 points around 3:30 pm on little or no news. The futures market this morning are pointing to a 220 point positive opening.

Is this just the market reacting to backed-in news? Or was there a rumor that since the Fed chief Jay Powell has taken all of  the wind from the stock asset bubble, the central bank will stand pat this afternoon?

It would take a lot of jawboning in the press conference afterward to calm a very surprised market not to sell off in panic wondering what the Fed knows that led them to not raise rates.

Of course the narrative would also say that Powell was trying to placate President Trump and his constant badgering of why the Fed can’t just step aside and see where the economy is 6 months from now before hiking again.

We’ll know the answer at 2:15 pm EST, but see where markets go this morning to see if they tip their hand.


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Trump has every right to be Fed up with Powell

As the Federal Reserve begins its two-day meeting Tuesday, to presumably raise rates to 2.5%, President Trump is out there battling the central bank on its direction and policy.

Trump tweeted Monday:

It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!

Trump is correct in his brief economic assessment on global growth, where America’s say 2.5% rise in GDP looks a lot better than Europe or China. As well as the lack of any meaningful domestic inflation.
The Fed’s concern earlier this year was asset bubbles leading to inflation. What does that mean in layman’s terms: Americans were starting to do well in the stock market and their paychecks with the tax cuts after a decade of economic malaise were bringing them a sense of pride and contentment.
Well we can’t have that, the Fed seem to say. And sure enough with four hikes this year in rates the Fed has wiped out all gains in stocks this year and then some.
So what is the end result for America because of the Fed’s policies?
The rate hikes have muted the economic benefits of the tax cuts, by taking away revenue growth to pay for the tax cuts. Tax revenue is up slightly this year over the last couple, but if the Fed was not slamming on the brakes, then the economy would be moving ahead at closer to 4% GDP.
This tax revenue growth could allow the federal government to actual pay for the runaway entitlement programs and actually be able to cut budget deficit growth.
I don’t anticipate the Fed pausing and not raising rates at Wednesday’s meeting since it was telegraphed to the market for the last three months. Yes, the market would spike if they did pause, but then start asking itself what does the Fed know and probably sell of again.
I do agree with the President on the need for Fed chief Jay Powell to “take the victory” and pause after this hike. Let’s see where the economy sits in June 2019. It takes six months before you get the full meaning of how your economic policies are working.
I’m assuming that’s all that is at work here, a disagreement on economics and not something broader.

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