Don’t count on Fed to ride to the rescue of a faltering stock market -- at least not yet

 That’s not encouraging for investors betting on the imminent exercise of a “Fed put” -- in which the central bank alters policy to prop up equity markets after a sharp decline. 

Bloomberg Economics Says...

“I think the Fed welcomes it. The stock market has to decline a lot more -- double the current drop -- before it will get close to wiping out the stock gains during the pandemic. This sounds callous, but declining stocks will get more people to come out of early retirement.”

--Anna Wong, chief U.S. economist

Bloomberg 19 May 2022

https://www.bloomberg.com/news/articles/2022-05-19/fed-plans-for-half-point-hikes-won-t-be-shaken-by-stocks-rout


If you have only been in markets for, say, 15 years, 

you are seeing the collapse of everything that you have been told is true and have also observed to be true about markets.

Bonds prices rising in the bad times. Mostly when things look tricky in equity markets there is a reason (or central banks at least manage to find one) to cut interest rates to sort things out.

The only time this can’t happen is when inflation is already obviously out of control — and no amount of fretting about market crashes and looming recessions can allow central banks to even begin to look like they aren’t fully focused on having a go (however fruitless it may be) at bringing it back under control.

Merryn Somerset Webb FT 20 May 2022

https://www.ft.com/content/caf34f2c-f826-4015-ac2e-cfaac7429a8e

US market is more overvalued than in 1929, 1973 and 2007
Merryn Somerset Webb FT 28 December 2021


Lower share prices make people’s portfolios shrink, they feel less well off, and they are less likely to buy stuff

That is exactly what the Fed wants. 

It needs share prices to fall enough to influence behavior, which means that policy makers need this to turn into a true bear market, and not like one of the 20%-ish declines that were followed by rescues and resumed exuberance.

John Authers Bloomberg 20 maj 2022

https://www.bloomberg.com/opinion/articles/2022-05-20/a-stocks-rescue-is-the-last-thing-the-federal-reserve-wants


“There is no market put, and I think we’re all waking up to that fact now,”

MarketWatch 19 May 2022 

https://englundmacro.blogspot.com/2022/05/there-is-no-market-put-and-i-think-were.html


But I think that the Fed will lose its nerve.

The inflation will go on.

Rolf  Englund 20 May 2022



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