While Jerome Powell is understandably eating crow for his dramatic hawk-to-dove reversal in under three weeks, which has sent stocks surging in the past two weeks for the biggest rally since 2011, we noted earlier that it wasn't the first time he had flipflopped, highlighting the difference in his outlook between the May and June 2013 FOMC meeting, the first just before the Taper announcement sent bond yields "tantruming" higher by 100bps in under 4 weeks, the second right after allowing the Fed the opportunity to digest the impact of the tapering announcement.
While we analyzed the nuances in Powell's shift earlier, one Powell quote from that meeting stood out, the one in which he justifies his inability to anticipated the market's violent reaction to the tapering announcement, and one which is especially applicable in a world in which everyone has an opinion what happens next in the market.
This is what Powell said on June 19, 2013, explaining why i) he is a terrible predictor of market reactions and ii) why nobody should listen to those who actively give you "advice" on what the market will do:
I’m not concerned about a little bit of volatility, but I have to say I am concerned that there may be more than that here. It’s very, very hard to know, I have to say. The more time I’ve spent with markets, the less I believe in my own ability to predict them, and I think that’s largely because when you talk to the people who actually matter for this, they always talk their book. It’s just the way it is.
Amusingly, just a few months earlier Powell warned his FOMC colleagues about the growing instability and market distortions created by the Fed's ongoing asset purchases, pointing to "many examples of bubble-like terms," in the leveraged-finance markets, and that while "I don’t think there’s an imminent crash coming" he warned that "the incentives will rule in the end, and the incentive structure that we put in place with the asset purchases, is driving securities above fundamental values. So there is every reason to expect a sharp and painful correction."
Powell then escalated his warning further, saying that he finds "it much less satisfying that the risk buildup is a clear, and perhaps intended, consequence of monetary policy" and adding that "we ought to have a low level of confidence that we can regulate or manage our way around the kind of large, dynamic market event that becomes increasingly likely, thanks to our policy."
Good warnings, yet as events five years later showed, all in vain when Powell himself was faced with a potential market crash and a capricious president who cares about the daily level of the S&P500.
As for the punchline, we go back to the June FOMC meeting:
The people who are willing to talk to you are not the ones who really matter, unfortunately, and that’s just the way it is.
Ironically, as December's Powell FOMC press conference and subsequent speech last Friday demonstrated all too well, even the people "who really matter", in this case the Fed Chair himself, when they do talk what they say also tends to be completely wrong.