On Wednesday, Powell issued "tough words" after the Fed's first policy meeting in 2022, not ruling out the possibility that the FOMC would raise interest rates at every meeting and the need for a massive contraction. During the press conference, the three major US stock indexes all turned down. at one point, the Dow, which had risen more than 500 points in early trading, fell more than 400 points during the day, and the Standard universals index fell more than 1% in intraday trading.

On Thursday, former Dallas Fed Chairman Li Richard Fisher said in an interview with CNBC that people must take off their beer goggles and stop assuming that the Fed will rescue the market.

Let's face it, the market has been wearing beer goggles for as long as possible, and they just assume that the Fed will act to rescue the market.

The so-called beer goggles Beer Goggles refers to a kind of fictional glasses caused by a large amount of alcohol, because drunken people tend to see more attractive people or results.

Meanwhile, Fisher also saidThe market must get rid of its dependence on the Fed. Because the market bubble is due to the "excess liquidity" brought about by the Fed's previous massive easing policies.

The market is surpassing itself because it depends on the Fed's generosity. But we must consider that, through statements rather than actions, we must wean the market off its dependence on the Fed.

What Fisher calls "Fed generosity" refers to Fed put options that began in the Greenspan era. During Greenspan's tenure as chairman of the federal reserve from 1987 to 2006, whenever there was a crisis and the stock market fell by more than 20%, the fed cut the federal funds rate in most cases.

This actually increases monetary liquidity and increases risk appetite in financial markets, thereby avoiding further deterioration of the situation. In the long run, investors have assumed that the Fed intends to protect asset prices, as if it were offering a "put option" that would avoid greater losses.

To put it simply, the Fed's put option is a kind of "rigid payment". The implicit commitment of the Federal Reserve allows investors to chase risk and push up the stock market, which will trigger a "Minsky moment" when asset prices plummet.

Fisher also pointed out that the exercise price of Fed put options has fluctuated sharply, and Powell, who is re-elected this year, will not bail out the market, and the Fed will follow their policy path.

Unless there is a dramatic shift in our market that suggests that it will affect the real economy, I believe, especially under the leadership of this chairman with a background in credit markets (Powell), the Fed will follow their announced course of action.

However, with inflation stubbornly high and the Fed may decide to abandon put options, a bull-bear shift in the stock market will be a more conventional feature.

Fisher, who has long been an outspoken inflation hawk, has been opposed to the Fed's zero interest rate policy, declaring in February 2020 that when the US stock market fell into the correction zone at its fastest pace since the Great Depression, the Fed's rate cut would do nothing to improve corporate access to credit, because the market itself is already doing it. At that time, Fisher said the Fed should have tried to rid the market of what he called "Fed generosity."

In the same year, the former Dallas Fed chairman also offered some insights into the "lost generation" on Wall Street.

The Fed created this dependence, with a whole generation of money managers who were not around in 74, 87, the late 1990 s, or even 2007-2009. All I saw was an one-way street (bull market). Of course they're nervous.

Wall Street News mentioned earlier that Jensen, chief investment officer of Bridgewater, estimated that for the Fed to act, the S & P 500 would have to fall by as much as 20%.

The CICC Research Daily on January 27th also believes that Powell has repeatedly stressed that this round of recovery is stronger than the previous round, or hinted that this round of tightening may be stronger than the last round of monetary policy normalization. The monetary policy statement also hinted at raising interest rates in March, but the pace and follow-up path of raising interest rates need to be discussed. The research newspaper believes that Powell does not deny the possibility of raising interest rates at one time 50bp, so this possibility can not be ruled out.

In addition, Powell is more "calm" about the recent volatility in financial markets, which may mean that the Fed will not play the role of "savior" again.