The whispers are growing louder about Jerome Powell's potential replacement, and I'm watching with amusement as market prognosticators trip over themselves to forecast doom. Let me save you some anxiety: it doesn't matter. Not one bit.
Here's why: The market has developed a delightful case of monetary policy Stockholm syndrome. After years of Fed coddling, Wall Street now operates on a remarkably simple algorithm - "interest rate cut = stocks go up." That's it. That's the entire equation.
I had lunch with a hedge fund manager last week who couldn't stop fretting about Powell's potential departure. "The market stability," he muttered between bites of overpriced salad. I nearly choked on my sparkling water. Stability? The market doesn't want stability – it wants cheap money.
Look at the recent job reports. Remember when we used to care about those? The data reliability could rival a weather forecast in Chicago, and yet the market's reaction hinges entirely on what it means for rate cuts. Strong jobs numbers used to be unambiguously good news. Now they're treated as threatening because they might delay rate cuts. It's like watching someone get upset about winning the lottery because they enjoyed playing the game.
The truth is that the Fed – whoever leads it – has painted itself into a corner. The market has been trained to expect intervention. Any new Fed chair will face the same reality: disappoint Wall Street's expectations for monetary easing, and watch the tantrum unfold. It's not governance; it's babysitting.
I developed a model years ago I call "the expectation ratchet." Once you establish a pattern of monetary accommodation, reversing course becomes increasingly difficult. Each intervention raises the baseline expectation for the next one. Powell's successor inherits this trap.
So yes, for at least the next 12-24 months, the bullish case remains intact. Not because the economy is particularly robust or because valuations make sense (they don't), but because the relationship between the Fed and the market has become pathologically codependent.
The truly fascinating question isn't "Will the market go up with a new Fed chair?" but rather "How long can this cycle continue before something fundamentally breaks?" History suggests these periods of monetary-fueled exuberance don't end with a gentle landing.
But that's a problem for another day. For now, the market will continue its Pavlovian response to interest rate cuts, regardless of who's ringing the bell at the Fed. The data could show the economy simultaneously on fire and in free fall, and as long as rate cuts are on the menu, investors will be lining up for seconds.
So go ahead and worry about who replaces Powell if you need something to do. Meanwhile, the market will be doing what it does best: following the money.
