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The Fed Is Freaked Out About the Financial Markets
Early in the new year, on Sunday, Jan. 3, Federal Reserve Vice Chairman Stanley Fischer delivered a hawkish speech to the American Economic Association. Completely misreading the economy, which is woefully weak while inflation is virtually nil, Fischer strongly hinted that the Fed would be raising its target rate by a quarter of a percent every quarter for the next three years.The next day Standard & Poor's 500 index dropped 1.5 percent. In the week that followed, the broad index fell 6 percent. The week after that it fell over 2 percent. During that two-week period, the Dow Jones dropped 1,437 points. The dollar went up. Oil plunged 21 percent. Raw material commodities dropped. And credit risk spreads in the high-yield junk market rose substantially. Actually, it was a global event, as stock markets around the world plunged. Utter chaos. This past week, the Fed retreated in its Federal Open Market Committee policy statement. For the first time in a long while, it didn't bother with a risk assessment between inflation and employment. The whole statement had a much softer tone. It reminded me of the prevent defense of Bill Parcells' old New York Giants. Putting it more starkly, I'd say the Fed is completely freaked out by financial markets that are turning against it. More at the link Posted by: badanov 2016-01-31 |
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