Obsession is a defining characteristic of the stock market. Invariably, it finds something to obsess about. Since the global financial crisis of 2008/9, it has mostly obsessed over Fed policy. (To take a break, it sometimes obsesses about oil prices instead.)
Right now, Wall Street is obsessing over whether the Fed will raise interest rates in September or December. Last Friday's plunge started with one Fed governor suggesting September.
Ben Bernanke increased transparency of the Fed during his tenure, by encouraging members of the Feb to discuss their thinking in speech across the country. They did, and it seemed to calm market fears that more rate cuts were on-the-table. It seemed to work as the trend in rates was down, but I don't think it is working well when the trend is up.
The timing of rate changes does matter. You don't want to increase rates in a weakening economy, as it will cause the economy to weaken more. Business will be less inclined to make more investment decisions when their businesses are weakening. Expectations matter!
Right now, Wall Street is obsessing over whether the Fed will raise interest rates in September or December. Last Friday's plunge started with one Fed governor suggesting September.
Ben Bernanke increased transparency of the Fed during his tenure, by encouraging members of the Feb to discuss their thinking in speech across the country. They did, and it seemed to calm market fears that more rate cuts were on-the-table. It seemed to work as the trend in rates was down, but I don't think it is working well when the trend is up.
The timing of rate changes does matter. You don't want to increase rates in a weakening economy, as it will cause the economy to weaken more. Business will be less inclined to make more investment decisions when their businesses are weakening. Expectations matter!
