The Fed’s tightening campaign, which was supposed to restore a semblance of monetary normalcy, after a decade of extraordinary stimulus, is officially over. The curtain came down far earlier than just about anyone in the mainstream had predicted. Given that the Fed’s sounded the retreat before any real blood was shed, should put into question whether they will ever be able to stand tough again.
According to most analysts, the economy is still strong and the financial markets are healthy. Yet despite this, yesterday the Fed announced no rate hikes for 2019 (and perhaps just one in 2020) and a premature September ending of its $50 billion per month balance sheet reduction program. When announced just last year, that program was supposed to cut the Fed’s $4.5 trillion bond portfolio by at least half. Instead we will be lucky to get below $4 trillion. Barely a dent.