by John Rubino
For the past few years, the US financial system and the Fed have been playing a game of chicken in which the Fed tries to tighten (or at least stop easing) and the stock market behaves like an addict deprived of its heroin.
In 2018, for instance, the Fed started raising interest rates and shrinking its balance sheet, though in both cases only a little. The S&P 500 did this:
[…] In response, the Fed relented and began cutting rates and, on the pretext of a “repo crisis,” aggressively expanding its balance sheet. Normality – in the form of rising tech stock prices – returned. 2019 was a very good year.
But in early 2020 the coronavirus outbreak didn’t immediately send the Fed into a rate-cutting, asset buying frenzy, and the S&P did this: