Stock Market Dependent Fed: Four Fed Presidents Speak in Favor of Pausing Hikes

Four Fed presidents, three of them voting members issued dovish statements today.

Please consider Fed Policymakers Say Wait On Further U.S. Rate Hikes.

After months of tumult in the stock market and rising speculation over a coming recession, presidents of four of the 12 Fed regional banks said they wanted greater clarity on the state of the economy before extending the central bank’s rate hike campaign any further.

Three of the four, Charles Evans of Chicago, Eric Rosengren of Boston, and James Bullard of St. Louis, are voting members this year on the Federal Open Market Committee, the bank’s 10-member policy-setting panel.

Bullard has long been critical of the Fed’s rate increases, begun in December 2015, but the caution from Evans and Rosengren is new, even if they both believe growth will remain solid and rates will probably need to rise more.

The fourth president, Raphael Bostic of Atlanta, said there was no urgency to raise rates further at this juncture.

“I think they have certainly changed their tune,” said Eric Stein, a portfolio manager for Eaton Vance who attended Rosengren’s talk.

The remarks from the four come less than a week after Fed Chairman Jerome Powell eased market concerns that policy makers were ignoring signs of an economic slowdown. Powell said he was aware of the risks and would be patient and flexible in policy decisions this year.

Stock Market Dependent Fed

Forget about the Fed being data dependent. It's stock market dependent.

Mike "Mish" Shedlock

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Irondoor
Irondoor

The market is the ultimate data-source. All other data feeds into it. Why do you think interest rates came down rather than going up when the 10-year hit 3.25 on Oct 5th? Simple: Oil topped two days earlier, the exact same day that the S&P 500 peaked. Corporations (especially tech) finished the 3rd quarter with the largest % profit growth in history and the market was at an alltime high. It can't be repeated on a comparative basis, so the market is just going the price the decline in growth. The markets (stocks and interest rates) have continued to send their merry message ever since. Right now, we are experiencing the 4th best selling opportunity since the end of the 3rd qtr. The other three were Oct 3rd, Nov 11th, Dec 4th, and maybe today, Jan 9th. Remember the biggest bounces occur in bear markets. Interesting thing about those dates? They come a few trading days after the beginning of each month. When traders reviewed their previous month's book and performance at the end of the month, selling was exhausted, and they decided they had to get long the usual momentum suspects (FAANG) they run the market up for a week but then complacency sets in, risk returned and down she goes to the reality that the cycle exists and we're not going back to the old highs of revenues, earnings, and stock prices any time soon.