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If you understand how many people have such a large stake in IPOs finding favorable equity market conditions in 2019...you can begin to understand Fed Chair Jay's Miraculous Policy Pirouette in Dec. 2018. And to be fair, S&P 500 op profit margin squeeze hit hard in Q4 '18.#FEDUp
The Fed says it just pursues the goals that Congress specifies. The Fed interprets those rules are: minimize unemployment subject to the constraint of maintaining stable inflation. The Fed defines stable inflation @ or near 2%, usually on core (ex food and energy) PCE deflator.
So if Chair Jay actually does what he says the Fed is directed 2 do, the Fed could have only chosen 2 pause in Dec because inflation was either falling well below target, or there was good reason 2 think it would do so in an interval of time equal 2 the Fed's policy response lags
Let's now take a look at the Fed's favored inflation measure (core PCE). This is monthly data available through December 2018, year over year % change. Notice the alarming shortfall of the 2% target that started to develop in Q4, threatening a return to deflation...oh, hang on. 
Ok, that is a rear view mirror. Fed has to anticipate inflation risks. Assume financial markets are efficient. Investors evaluate all the relevant information available and form expectations accordingly. Fed tracks medium/long term inflation expectations from the bond market.
They use something called 5 year/5 year forward rate from TIPS market to track infl expectations. Notice how investor expectations for inflation were collapsing and well below the 2% target...oh, hang on...well they did go do down...an "alarming" 0.20%...20bps
Do you seriously believe that (see drop in the blue line above) is enough of a drop in the prospective inflation rate for the Fed to scurry to the sidelines...and announce an end to its balance sheet shrink. If so, why not pause in early 2017 on a similar wiggle lower? WTF?
So why did Chair Jay lead the Fed to the sidelines? The equity market was selling off hard. Corporate bond spreads were widening quickly. The net worth of the 1% was shrinking, and if the rout was not stopped, no IPOs in 2019. BBB bond rerated down. Forced asset sales from funds.
Chair Jay did not fold his cards because inflation was falling, or threatening to fall short of Fed target. Chair Jay folded his cards because investors (buds from his private equity and investment bank world) were sh*tting the bed. The Fed is running a welfare program for the 1%
The Fed's QE program was just a massive subsidy for bond holders and equity holders (the 1%). Fed provided a bid for bonds. Has to bid above last private investor bid to get the bond. Price of bond goes up when Fed creates money wins bid. Wealth of bondholders goes up. Voila!
MMT & MMM r disputing financial constraints on fiscal policy. The Fed creates money called reserves when they buy assets like UST debt from private holders of that debt. Reserves r a Fed liability. They r the only thing the UST is currently allowed 2 use 2 execute govt spending.
Strictly speaking, the UST cannot create reserves - only the Fed can. But the UST cannot collect taxes or UST bond auction proceeds unless and until the Fed has first created reserves (money). There is no financial constraint on Fed reserve creation and balance sheet expansion.
There is the policy goal constraint Congress set 4 the Fed: inflation stability, aka core PCE growth near 2%. So when it came time 2 subsidize bond holders (mostly the 1%) with QE purchases after the 2007/8 debacle, how constrained was the Fed's balance sheet. Not very, apprntly.
The Fed was financially unconstrained 2 the tune of over $3 trillion extra dollars it created in reserves running its welfare program for destitute bondholders. But, it would be irresponsible as hell to use that for fiscal policy when inflation is < 2%. That's just MMT Nonsense.
And 4 fut reference, notice how Fed's preferd measure of inflation expectations is highly correlated with the spot price of oil. Now there's a rational expectation 4 you: todays price of oil determines 10 year inflation rate? Fed is reckless driving by market myopia, specs #FedUp
The Fed's infl models tend 2 boil down 2 some measure of labor tightness + infl expectations. As Phillips Curve in doubt, exp. have Fed's attention. Given above analysis, Fed is essentially flying by a crude oil spot price target...when it is not busy subsidizing wealthy families
By the way, if ur paying attn @paulkrugman, maybe that is why we got asset price inflation (bubbles) rather than product price inflation, in 1st instance, from Fed post GFC BS surge. It was MV=PT for IrvFishr, not Q: T included financial transactions, not just goods & services
In fact, this was a big training exercise. The Mahwkhet needed 2 see whether New Chair Jay would renew the Greenspan Put (stop tightening, ease, buy assets from Mahwkhet at subsidized higher px). Compliance training. Except most options have a price the buyer must pay. Not the 1%
