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Prisoners Dilemma

By Charles Payne, CEO & Principal Analyst

The Federal Reserve made significant changes to its economic outlook and policy path that left investors scratching their heads after a knee-jerk rally faded quickly. Adjustments to economic growth and inflation weren’t dramatic, but it underscores this new accommodative phase that could last a long time.

2019 Economic Projections:

  • Gross Domestic Product (GDP): 2.1% from 2.3%
  • Unemployment: 3.7% from 3.5%
  • Inflation: 1.8% from 1.9%

The Dots Become Boulders

Even though independent surveys have suggested the Fed was done with rate hikes and could possibly even see a rate cut in 2019, Wall Street didn’t think the Fed would officially take that option off the table.

That’s exactly what the Fed did. As the dots dropped, the Fed’s “Dot Plot” suggested just one rate hike in 2020.

Prisoners Dilemma

The Federal Reserve had the option to indicate another rate hike this year rather than going to zero.  That’s why the Q&A segment saw the same question about the state of the economy. Why did the rate hike forecast seem so much more dramatic than an adjusted economic forecast?

Jay Powell said fixed business investments, retail sales, and jobs were stabilizing, but still growing slower than last year. He believes the consumer will keep the economy buoyant, citing stronger wages, and confidence, along with overall employment and an increase in labor force participation -which he said was “extremely welcome.”


During the Q&A period, Powell stressed the following:

  • The economic outlook is “positive”
  • It’s a great time to be patient
  • The debt can’t grow indefinitely, but no near-term crisis
  • Wage growth – on the lower end, works typically in a late cycle
  • Wage inflation not the same as price inflation

Powell answered one question: the Fed balance sheet would wind up at $3.5 trillion, which is lower than the new unwinding plan suggested. Be that as it may, the Fed will stop quantitative tightening (QT) at the end of September.


Jay Powell gave the Street everything it wanted. However, bond yields swooned, and the inflated yield curve has moved back as a concern. Remember: an inverted yield curve is considered a sure-fire harbinger of a recession, although I think it’s too early to talk about a recession.

The final analysis is Powell seemed confident in his convictions even with his contradictions. Wall Street wants the Powell Fed to be able to listen and to move with the markets. If you didn’t think or know Powell would play ball well, now you know. I’m saying move over, Bobby Brown, because it’s all about Powell’s Prerogative.


Charles Payne
Wall Street Strategies


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