Can you still expect the Fed to “bail out the market”? Top Fed officials revealed they are watching the stock market, but have no objection to the market decline

On Thursday, May 19, Eastern Time, FOMC voter and Kansas City Fed President George Esther George said that “the turbulent performance of U.S. stocks over the past week” is to be expected, reflecting the impact of monetary policy tightening to a certain extent, she said, Market turmoil won’t change the Fed’s tightening plans .

After stabilizing and rebounding in the past few days, U.S. stocks fell again overnight, the Dow lost thousands of points, the S&P fell more than 4%, the largest one-day decline since June 2020, and the Nasdaq 100 fell 5% to hit May 6 The biggest one-day drop in days. An earlier article in Wall Street News pointed out that the recession narrative has not yet been reflected in U.S. stocks and U.S. bonds, and the current sharp decline in U.S. stocks is mainly due to the impact of the Fed’s hawkish policies and concerns about earnings and growth.

George sees the recent dip in stock prices as expected, suggesting the Fed’s “puts” may no longer exist:

Watching the stock market is an important price signal that needs to be watched like many other signals. This is a time of uncertainty. It’s been a rough week in the stock market.

What we are looking for is to convey our policy through the market understanding that tightening should be expected and that is one of the ways to tighten financial conditions.

In the face of the US stock market sell-off triggered by the Fed’s tightening of monetary policy, George, one of the former Fed hawks, has recently behaved more like a centrist, saying that his support for a 50 basis point rate hike has not changed:

I think what we’re looking for is to pass our policy through market expectations, and tightening is expected…that’s one of the ways that financial conditions will tighten.

Now that inflation is too high, we need a series of rate adjustments to bring it down… We do see financial conditions start to tighten, so I think that’s something we have to watch carefully. It is difficult to know exactly how much to tighten.

A 50 basis point rate hike is appropriate, and plans to shrink the Fed’s $8.9 trillion balance sheet will help tighten policy. Playing it safe, making sure we’re on the right track, getting some of those rate hikes into the economy and watching how it goes, that’s going to be my real focus.

Nomura’s Charlie McElligott commented on the content of the remarks that while Fed officials were not overly concerned with market behavior and the outlook for consumers, rather than “now” focused on the need to reduce inflation, her comments confirmed that they were “focusing” on the FCI’s readings. Influence.

Over the past decade, the S&P 500, the benchmark widely used as a measure of U.S. stock performance, has posted a compound annual return of 16.6%, not far from investors’ highest forecast for future annual returns of 17.5%. Growth in corporate earnings has underpinned the boom in U.S. stocks over the past decade.

However, as Wall Street News pointed out in an earlier article, some analysts said that U.S. stocks have now entered the fourth “super bubble” in the past 100 years, and they believe that this round of corrections in U.S. stocks has just begun. Faced with the highest level of inflation in more than four decades and the Federal Reserve’s aggressive policy of raising interest rates, investors are increasingly worried that the U.S. economy will be in a recession.

Judging from the recent speeches of Fed officials, the reality that investors must face is that the “Fed put options” that the market is familiar with may have really ended and will be replaced by the Fed’s “call options” in the short term , market participants said, An orderly tightening of financial conditions is exactly the “ideal state” the Fed wants.

Scott Minerd, global chief investment officer at Guggenheim Partners, warned that the Fed’s tightening of monetary policy is “too much”, the US stock market may experience a “painful summer” in 2022, and the Nasdaq may fall by 75% from its peak (it is only now relatively The all-time high recorded on November 19, 2021 is about a 28% correction), and the S&P may fall 45% from the top (it is currently down 18% from the all-time high recorded on January 3, 2022).

That could be very similar to what happened in 1999 and early 2000 when the dot-com bubble collapsed, Minerd thinks.

This article is reprinted from: https://news.futunn.com/post/15714584?src=3&report_type=market&report_id=206151&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.