Chairman Powell, You Have Just Been Hazed

https://trendmacro.com/system/files/reports/20180222TrendMacroLuskin-C9.pdf
Donald L. Luskin
Thursday, February 22, 2018
Markets are punishing him for his rank amateurishness, but he showed he’s no hawk.
Federal Reserve
US Stocks
US Bonds
Yellen’s last FOMC left Powell with the job of explaining what “further” gradual rate increases means, via yesterday’s minutes. He obfuscated rather than explained, but we see him as trying to downplay the hawkish interpretations. And yesterday’s yield and TIPS breakeven back-ups imply a more dovish Fed. But rising yields and inflation have become part of the dominant negative narrative for stocks, and it was “further” that started the stock market correction that became a VIX-driven rout. Now Powell’s ham-handed debut has re-awakened volatility. He is being punished for his rank amateurishness, but he’s shown he’s no hawk, albeit clumsily. We think the healing process for stocks that we called for two weeks ago will continue.