The SPX has just jumped 3% in response to the Federal Reserve announcing that they will raise the Fed funds rate just as they said they would. Oh boy, oh boy!
Fed Chair Jerome Powell also said they wouldn’t raise 0.75% as some financial commentators were speculating – but the Fed never said that was on the plate. (rolling eyes)
Wall Street is just nuts, as Benjamin Graham noted in the 1920s.
**The Fed Still Isn’t the Stock Market’s Friend**
**Wednesday’s rally notwithstanding, the central bank could do more damage to equities as it keeps tightening**
**By Justin Lahart, The Wall Street Journal, May 4, 2022 4:34 pm ET**
**...Fed policy makers on Wednesday raised their target range on overnight rates by a half-percentage point — more than the quarter-point increase they made in their initial tightening foray in March—and made clear that the rate hikes will keep on coming. They also announced that the Fed will begin reducing its $9 trillion asset portfolio by letting $47.5 billion in Treasurys and mortgage bonds roll off for each of the three months starting in June, and increasing that amount to $95 billion starting in September....**
**It would probably take a much more pronounced selloff to put its tightening plans on hold than, say, the roughly 20% decline in the S&P 500 toward the end of 2018 that helped prompt the Fed to stay its hand on rate increases....**
**And there are reasons why the Fed might think it can safely ignore falling stocks. First, even with the recent declines, valuations look steep relative to history. So further declines might simply be viewed as air being let out of a pricey market, rather than as a reflection of economic trouble. Second, and perhaps more important, falling stocks might not cause much in the way of economic distress. ...** [end quote]
Today’s stock market pop is silliness. Anyone who looks farther forward than a day will realize that the Fed has to act seriously to bring down inflation. They should have raised rates gradually in 2021 but now they have to be stronger. The Fed has been transparent – there’s no secret about this. Or about its impact on stock prices, which has happened the last 7 times the Fed raised rates.