How Stocks Drive Monetary Policy
05 April 2019 - 9:39AM
Dow Jones News
By WSJ City
It isn't quite true to say that monetary policy is all in the
mind, but it isn't entirely false either. The Federal Reserve is
subject to the whims of the markets, and that is rarely as obvious
as in the past six months, James Mackintosh writes in his
Streetwise column.
KEY POINTS
-- The Chicago Fed's National Financial Conditions Index and the Goldman
Sachs FCI tightened quickly when shares plunged late last year.
-- Goldman's measure suggested that for a couple of days before Christmas
conditions were slightly tighter than in December 2015.
-- They quickly eased off, however.
-- Three years of Fed rate rises had resulted in overall financial
conditions that were unchanged......and are now once again looser.
Analysis
This year's stock rally has helped to loosen financial
conditions again, as markets recognised the Fed's change of tone,
and stopped worrying so much about recession. If overall financial
conditions are really what matters, perhaps the Fed should target
the S&P 500. Cynics will say that it already does, it just
can't tell anyone.
A fuller story is available on WSJ.com
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(END) Dow Jones Newswires
April 05, 2019 04:24 ET (08:24 GMT)
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