Vicious Stock Reversal Is Symptom of the Fed’s Feedback Problem
- Risk assets plunge after biggest post-Fed rally in a decade
- ‘Sell the rally’ given Fed focus on financial conditions: Ren
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Question for market experts: When U.S. stocks staged their biggest rally in two years Wednesday after the Federal Reserve enacted its first half-point rate hike since 2000, was Jerome Powell happy or sad? And what about today, when the entirety of that advance went poof in 90 minutes?
Only he knows, but the question goes to the heart of a puzzle that is likely to dog markets for weeks and months to come. How does the motion of markets affect the state of financial conditions, the cross-asset measure of stress that in Powell’s words is the channel via which monetary policy “reaches the real economy?”