One worrisome thing for bond investors that’s contributing to volatility is the unknown: new Federal Reserve Chairman Jerome Powell. For years after the financial crisis, they could count on Ben S. Bernanke and Janet Yellen to essentially limit how far prices can fall in financial markets -- colloquially referred to as a “put,” after the option. In other words, the bet was that central bankers would add stimulus or, in recent years, halt their tightening path on signs of unusual turbulence.
Judging by remarks this week from policy makers, who were unmoved by rising yields and the losses in stocks, the Powell Fed isn’t rushing to signal that tendency. New York Fed President William Dudley on Thursday called the stock selloff “small potatoes” and said it has no economic implications.
“The market has been kind of having a panic attack -- we really haven’t heard from Powell and it would help if he made some soothing comments,” said Ed Yardeni, president of Yardeni Research. “I don’t think he wants to establish right away that he wants a ‘Powell put’ the way we had a ‘Greenspan put’ and a ‘Bernanke put.”’
The market peaked in August of 1987 around the same time as Alan Greenspan took office. Following Black Monday, in October of that year he stated the Fed would provide whatever liquidity was required and over the course of the next few months proceeded to bailout Long-term Capital Management. Thus, the Greenspan put was born and the market proceeded to rally for the next 12 years.Click HERE to subscribe to Fuller Treacy Money Back to top