Krishna Memani says the combination of low rates and an easing Fed matter more for markets than an inverted yield curve.

Anyone who has read my blogs over the years can vouch for the fact that I thought the U.S. Federal Reserve (Fed) was making a policy mistake when it was tightening policy.

They would also vouch for the fact that the threshold of the policy action has to be reasonably high for me to even contemplate that the Fed is on the verge of making a policy error in becoming uber-dovish.

Slowly and somewhat unsurely I am getting there.

Bond Market Gets All It Wants – And Then Some

The Federal Open Market Committee’s (FOMC) March meeting pronouncements are even more dovish than what even the biggest bond market bulls would have expected. Not only did the markets get everything they expected, Fed policymakers did them one better. They gave them everything they COULD have wanted.

No rate rise in 2019. One in 2020. This from a Fed that didn’t know where neutral was, and even if they did, they thought they would go above it. Unbelievable.

The Fed also announced its balance sheet unwind will stop by the end of September. Again, whatever happened to watching paint dry? We had just finished putting on the primer, and the paint hadn’t been applied yet.

Then, Fed Chairman Jerome Powell stated the obvious: The overarching goal is to sustain the expansion.

Powell then went on to provide some platitudes – solid, growth in 2019; we will be patient; inflation remains near our goal of 2%, etc.

But the bottom line is that after talking very bravely in 2018, the Fed has gone beyond capitulating, it has effectively surrendered.

The Fed is not data dependent anymore, at least not for a while.

For 2019, the risk rally is on. We will reevaluate late in the second half of the year.