Economics

Fed Deluge of Dots and Discord Leaves Global Markets Baffled

  • Forward guidance proving less useful at mapping rate hikes
  • Data dependency creates market uncertainty in interpretation

Warsh: Fed Has Become Prisoner to Market Expectations

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The U.S. Federal Reserve’s decision next week on whether to raise interest rates is a vital issue for markets and investors around the world. Problem is, all the speeches, forecasts, meeting minutes, press conferences and media interviews given by Fed officials in the lead up is muddying, not clarifying, the outlook.

Case in point: Boston Fed President Eric Rosengren on Sept. 9 said the economy could overheat if they waited too long to raise interest rates, contributing to a 2.5 percent rout in the S&P 500 Index that was the biggest move since the U.K.’s vote to leave the European Union. Three days later, Fed Governor Lael Brainard argued there’s no rush to tighten, helping lift the S&P 500 by 1.5 percent in the equity benchmark’s biggest one-day reversal since January.