Market Extra: Did the stock market ‘misinterpret’ Fed again? What strategists say about the reaction to the July minutes

by | Aug 17, 2022 | Stock Market

Minutes from the Federal Reserve’s meeting in July — at which policy makers hiked the benchmark interest rate by 75 basis points, indicate stock-market participants were too quick to price in a “less hawkish” policy outlook, some strategists argued Wednesday. Federal Reserve officials in July agreed that it was necessary to move their benchmark interest rate high enough to slow the economy to combat stickier inflation, according to minutes of the Federal Open Market Committee’s July 26-27 meeting released Wednesday. 

Fed officials agreed that “moving to an appropriately restrictive stance of policy was essential for avoiding an unanchoring of inflation expectations,” while some indicated that the policy rate would have to reach a “sufficiently restrictive” level to ensure that inflation is firmly on a path back to 2 percent, and maintain that level for some time.  The minutes, however, also showed “many officials” said they were worried about the risk that the Fed could tighten the stance of monetary policy by more than necessary. U.S. stocks finished lower on Wednesday after trimming losses. The S&P 500
declined 31.16 points, or 0.7%, to end at 4,274.04. The Dow Jones Industrial Average
snapped a five-day winning streak, falling 171.69 points, or 0.5%, to end at 33,980.32, after declining 324 points at its session low. The Nasdaq Composite
dropped 164.43 points, or 1.3%, closing at 12,938.12. As investors parsed the summary of the meeting, economists at Citi argued that rather than being suggestive of more dovish policy, the minutes were merely “calls to remain data dependent in an uncertain and rapidly evolving environment.”  “Minutes from the July FOMC were overall balanced, reflecting a committee worried they might provide too little restriction to bring down inflation, but also concerned they might tighten by too much leading to an unnecessarily negative growth outcome,” said Citi economists Andrew Hollenhorst and Veronica Clark in …

Article Attribution | Read More at Article Source

Share This