All through last year The Fed and Jerome Powell made it very clear that they would be raising rates.
The message was consistently that the Fed expect to continue to raise rates through 2019. The plan is not as clear as it once was due to the high volatility that has been seen in financial markets over the past several months. Powell has stated previously that the Fed is more concerned with economic data the how the financial markets are doing. However, the financial markets care a lot about what he has to say.
The last time the Fed raised the stock market dropped 8% because markets were surprised that the Fed raised rates. This is just one recent example in how disconnected markets and the Fed have been at times. During, the meeting after Powell change his tone saying that the fed will watch markets and slow rates raises down due to fear of slower growth.
Powell has also change the Feds policy and will now talk after every Fed meeting. I think Powell has made it clear that he wants to address the issue of creating confusion. It seems the his goal is to ensure markets and the Fed are on the same page.
https://www.wsj.com/articles/plain-spoken-fed-chairman-sometimes-leaves-markets-confused-11548757801
6 comments:
As you mentioned, the Fed made it clear that they were going to raise rates so I think it is surprising that the financial markets dropped such a large degree. Regardless, I think it is good that the Fed is waiting for more data and watching what the markets do these next few months. Slow growth is a definite concern for our economy and if they continue to raise interest rates it will help push us into a recession.
It will be interesting to see if the Fed decides to raise interest rates again after waiting.
Considering the drop in the market in late 2018 due to the rate hike, I would be surprised if Powell now openly hikes rates and puts the markets almost at his command. The rates impact the market, but so does a lack of news. I think if Powell is extremely clear about his plans, the markets will tolerate. Although, I agree with Powell's main concern. Economic indicators and growth should be the most important piece, we could be entering into a very touchy time if Consumer confidence falls again, as well as growth and employment numbers.
I agree with Antonio, economic indicators and growth should be made a point of emphasis with the economy, especially with the government shutdown recently being lifted. With that, it will be interesting to see if the interest rates are changed before this economic data becomes known to the public.
In 2018, the US saw a lot of growth with high GDP, low unemployment rates and the stock market reaching all-time highs. If the fed continues to raise rates, as they suggested, do you think that we are due for a correction in the market? It's hard to continuously beat record-setting numbers each quarter. The US has been in an upward trend for the last 10 years, and typically business cycles last 7-10 years.
I believe the rate hikes need to continue. If we want to be able to properly recover for a harsh correction or a recession we will have to have room to lower rate. Where they are right now I don't think gives us enough leeway or flexibility if the stock market goes through a serious correction.
I agree with Aidan. We need rates to rise to give us room to shrink back down again in the inevitable event of a recession/correction. The interest rates were effectively 0 from 2008-2015 and we are only just starting to see the much needed increases.
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