By now even the most fervent market bulls realize that the economy is on the cusp of a recession and that stock markets are on the cusp of a crash. That’s why so many of them are hoping for further cuts to interest rates on the part of the Fed. Right now the consensus is that the Fed should cut rates three more times this year. But what do Fed policymakers think about that?
Outspoken policy dove Jim Bullard, President of the St. Louis Fed, recently stated that “we are not in a situation like 2007-2008,” a statement that brings back memories of Ben Bernanke’s famous statement in May 2007 that the “effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”
According to Bullard, the current crisis with China, in which China devalued the yuan and President Trump responded by labeling China a currency manipulator, is not an intensification, merely a minor spat. He believes that the Fed has already accounted for international trade issues in its policy adjustment and thinks that the Fed should not react to short-term market moves. While that last part is certainly true, it’s hard to characterize the ongoing deterioration of trade and political relations with China as anything less than a crisis that won’t be overcome anytime soon.
Coming from a notorious dove like Bullard, these statements can’t give markets any confidence that the Fed will continue cutting rates later this year. Of course the Fed shouldn’t be setting interest rates anyway, but if Fed policymakers understood the dire shape the economy is in, you can bet your bottom dollar they’d keep cutting rates in an attempt to restimulate the economy and keep a recession at bay. Statements like this from Bullard make it clear that Fed policymakers really don’t have any clue about how the economy is doing.
That’s dangerous both for Wall Street professionals as well as for mainstream investors. The risk of a Fed policy misstep is all but certain, if it hasn’t already occurred, and investors need to take steps to protect their assets against the results of those missteps. That means safeguarding their portfolios by investing in gold and other safe haven assets.
With a central bank operating essentially blind and clueless, investors need to be more cautious than ever about the safety of their retirement savings. Don’t wait any longer to protect your portfolio.
Image: Federal Reserve Bank of St. Louis