Fed Chair Powell Delivers the Perfect Storm to a $54 Trillion Bubble Stock Market: A Pivot to Inflation Hawk and Removal of the Punchbowl

By Pam Martens and Russ Martens: December 1, 2021 ~

Fed Chair Jerome Powell Testifying Before Senate Banking Committee, November 30, 2021

Fed Chair Jerome Powell Testifying Before Senate Banking Committee, November 30, 2021

Fed Chair Jerome Powell along with Treasury Secretary Janet Yellen appeared before the Senate Banking Committee yesterday to deliver their semi-annual reports.

Approximately 34 minutes into the hearing, in response to a question from Senator Pat Toomey, Republican from Pennsylvania, Powell announced that he was retiring the word “transitory” to describe the inflationary forces that have a grip on prices in the U.S.

The stock market interpreted this to mean that Powell, who just eight days prior had become Democrat President Joe Biden’s nominee for another four years at the helm of the Fed, was now pivoting to cater to Republican inflation hawks in order to win their votes at his upcoming confirmation hearing. The Dow Jones Industrial Average quickly did a bungee dive of 402 points.

About 90 minutes into the hearing, the stock market went into a new wave of selling following Powell’s answer to an insult and question from Republican Senator John Kennedy of Louisiana. Kennedy said this:

“I realize that no one is clairvoyant but I think it’s fair to say that the experts who have been advising you about the future rate of inflation have pretty much the same credibility as those late-night psychic hotlines that you see on TV. Is the Fed considering increasing the pace of its tapering? We’ve got to get control of inflation. It’s ravaging our people.”

By “increasing the pace of tapering,” Kennedy was asking if Powell might further reduce the $120 billion a month the Fed has been buying up in U.S. Treasury securities and agency Mortgage-Backed Securities (MBS). The Fed calls that punchbowl to Wall Street “Quantitative Easing,” which helps the Fed keep short term interest rates in the zero-bound range. The Fed had announced on November 3 that it would reduce the amount of its Treasury security purchases by $10 billion each month and reduce MBS by $5 billion each month. At that rate, its punchbowl to Wall Street would continue until next June, albeit at depleted levels each month.

Powell responded to Kennedy as follows:

“I think what we missed about inflation – we didn’t predict the supply-side problems. And those are highly unusual and very difficult, very non-linear. It’s really hard to predict those things. But that’s really what we missed and that’s why all of the professional forecasters had much lower inflation projections.

“You asked about the taper and so, yes, as I mentioned earlier, since the last meeting we’ve seen basically elevated inflation pressures; we’ve seen very strong labor market data without any improvement in labor supply; and we’ve seen strong spending data too. And remembering that every dollar of [bond asset purchases by the Fed] does increase accommodation, we now look at an economy that’s very strong and inflationary pressures that are high, and that means it’s appropriate I think for us to discuss at our next meeting – which is in a couple weeks – whether it will be appropriate to wrap up our purchases a few months earlier…”

The Dow sold off further on those remarks from Powell, leaving the Dow index down 652 points at the closing bell.

The perfect storm of an inflation hawk at the helm of the Fed, the QE punchbowl being drained more rapidly, as global GDP potentially takes a hit from a virulent new strain of COVID – all coming amidst the biggest stock market bubble in world history – and one can see why Wall Street bulls are running for shelter.

On September 23, the Federal Reserve released its Z.1 statistical release on the Financial Accounts of the United States. The section on “Corporate Equities” revealed that at the end of 2019, the market value of all publicly-traded equities (stocks) in the United States had reached $38.47 trillion. By June 30, 2021, in the midst of a national emergency from an ongoing pandemic, the market value of all publicly-traded stocks had surged to $54.768 trillion, an increase of 42 percent. (See page 130, Line 29 at this link.)

At $54.768 trillion, the U.S. stock market was larger than the combined GDP of the United States, China, Japan, Germany, France, Italy, Spain, and the U.K., according to GDP data from the World Bank. And a lot of the leverage that is propping up this massive bubble is hiding out in bank holding companies that own the largest federally-insured commercial banks in America. (See related articles below.)

All of this hubris falls directly at the feet of Jerome Powell – a man who has presided over not just the biggest market bubble of all time but also the worst trading scandal in the Fed’s history.

President Biden didn’t nominate Powell for another four-term term because he had confidence in him to steward the economy. (Powell doesn’t even have an economics degree; he has an undergraduate degree in politics and a law degree.) Biden nominated Powell because he was told by advisors that if he didn’t the stock market would tank and impact 401(k) accounts for average Americans (thus making it harder for Democrats to win the mid-term elections next year).

Well, the market is cracking anyway and Americans are stuck with Powell. Buckle up.

Related Articles:

Archegos: Wall Street Was Effectively Giving 85 Percent Margin Loans on Concentrated Stock Positions – Thwarting the Fed’s Reg T and Its Own Margin Rules

Margin Debt Has Exploded by 49 Percent in One Year to $814 Billion. The Actual Figure May Be in the Trillions. Here’s Why.

Congress Is Facilitating “Catastrophic Risk” by Allowing Federally-Insured Banks to Be Owned by Wall Street’s Trading Houses

The U.S. Banking System Is More Dangerous Today than in 1929, Thanks to the Fed’s Reg U and Swaps – Two Well-Kept Secrets from the Senate Banking Committee

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