The financial markets are overstimulated like a cranky child after too much sugar (aka, sugar rush). So what will happen to overstimulated markets if Fed Chair Powell announces withdrawal of monetary stimulus?
The famous Hindenburg Omen is already flashing WARNING ahead of this week’s Fed meeting at Jackson Hole. Will Powell take the punch bowl away?
The Shiller CAPE ratio is at a high since the financial crisis and stock market correction in 2008 and early 2009.
I would expect Powell to walk softly since he has the opportunity to terrify financial markets. But I expect Powell will announce a small adjustment to the growth of The Fed’s balance sheet in line with The Fed’s DOTS project signalling interest rate increases in the futures.
Throw Covid, a slowing China and Europe into the mix, and Powell and the gang had better think long and hard about they are going to withdraw the record monetary stimulus from the cranky financial markets.
Meanwhile I hope that have a few beers from Bond’s Brewing Company, the best beer in Laramie, Wyoming!!