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Powell Admits “Low Rates Are Not A Choice Any More”, Says QE Will Be Used In Next Downturn

Article by Tyler Durden in Zero Hedge

Instead of Powell bloviating before Congress for hours every six or so months while discussing his social life and avoiding answers to questions that really matter, it would be a much better use of everyone’s time if C-SPAN and congress just showed two charts which explain everything one needs to know about what really matters to the Federal Reserve, and why it can never again allow price discovery to take place.

The first chart is the following: it shows that private US financial assets (i.e., the stock market) is now 5.6 times US GDP and any sizable drop in the stock market would lead to an almost instantaneous depression. It also explains why the Fed can never again allow true price discovery as the opportunity cost is the collapse of trillions in “financial wealth”, a catastrophe for the US economy, and the end of American life as we know it.

The second chart is the latest CBO long-term debt forecast: while it needs no explanation, SocGen’s Albert Edwards did “explain it” calling it a “ticking timebomb“, because as the notional amount of debt set to explode in coming years, any sharp increase in the interest rate will lead to an almost instant financial crisis and potentially the loss of the dollar’s reserve currency state. The point is simple: as in the case above, the Fed can never again stop manipulating interest rates as the alternative would mean a debt cataclysm as the amount of debt outlays for both the public and private sectors, soar.

Alas, none of this was discussed, although when testifying before the Senate today, Powell did come close to admitting the dire conclusion these two charts suggest when he unexpected admitted that “low rates are not really a choice any more”, because any jump in rates will lead to financial instability if not outright catastrophe which means the Fed is now stuck in the current abnormal regime; it also explains why in the same breath Powell said that the Fed may need to return to forward guidance and QE, and these tools “will be used aggressively if needed.”

• POWELL: FED LIKELY TO NEED QE, FORWARD GUIDANCE IN A DOWNTURN
• POWELL: FED WILL USE TOOLS AGGRESSIVELY IF THEY ARE NEEDED

And, as the first chart above indicates, “they will be needed” any time there is even a modest correction in a in a world in which the artificial prices in the US stock market make up the bulk of global “assets.”

To read this article and charts in its entirety, click here.

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