Fed front=ended this Market

[RE2Boys]

Very interesting article about the market rally of last few years and possible ramifications

Quote in part"
Summary

Richard W. Fisher's appearance on CNBC this week offered remarkable insight into why voting members on the FOMC embraced zero percent rate policy as well as QE for so many years.
One of the world's most influential people in any room acknowledged that the Fed wanted to push stocks higher to make participants feel wealthier.
However, there have been several problems with the Fed's wealth effect ambitions.


Richard W. Fisher served as the President of the Federal Reserve Bank of Dallas for more than a decade (2005-2015). His appearance on CNBC this week offered remarkable insight into why voting members on the Federal Reserve Open Market Committee (FOMC) embraced zero percent rate policy as well as quantitative easing (QE) for so many years.
One of the most controversial statements? Fisher candidly admitted, "What the Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect."


Article is at: 'We Front-Loaded An Enormous Stock Market Rally' | Seeking Alpha

 

[hurricane harry]

really

 

[DrRoy]

This is certainly relevant. I also think that in the last year market weakness is tied to the low price of oil. That reduces earnings from the oil patch along with the economic activity associated with searching for and extracting oil and gas. I think that most of the low cost comes from Saudi Arabia deliberately keeping supply high to hurt their various opponents, but the market is concerned about how much of the price is on the demand side. Lower demand is equated with less economic activity and lower corporate earnings, so lower stock values.

 

[bmcgonig]

In line with those who think the future is a low return environment. He said that we borrowed future returns to goose the wealth effect.


Sent from my iPad using Early Retirement Forum

 

[LOL!]

Lower demand [for oil] is equated with less economic activity and lower corporate earnings, so lower stock values.

So I can only conclude from the recent jobs numbers that we have full employment and the Wealth Effect allowed everybody who wanted to retire to retire … as long as they don't create any economic activity.

 

[stepford]

My simplistic understanding of the Fed's job is to use monetary policy to control inflation and employment. When inflation is low they reduce interest rates to encourage borrowing and, through that, spending and eventually growth and increased inflation. Part of this increase in spending comes from increased equity values encouraging the equity holders to spend - aka the wealth effect.

As far as I know this has ALWAYS been part of the calculus when the Fed lowers interest rates. The only thing different this time around was the severity of the deflationary threat and the extent of measures taken to combat it. I believe awareness of (and use of) the wealth effect by the Fed has been going on as long as any of us on this forum have been alive. (My apologies if I've left out a few lurking centenarians who antedate the Fed).

 

[audreyh1]

I don't know that the Fed deliberately engineered the effect of higher asset prices, but I do tend to believe that their accommodative economic policy programs had the effect of raising asset prices and I attribute much of the 2013 stock market rally to that.

 

[stepford]

I don't know that the Fed deliberately engineered the effect of higher asset prices, but I do tend to believe that their accommodative economic policy programs had the effect of raising asset prices and I attribute much of the 2013 stock market rally to that.

Depends on what you mean by deliberate. Control of equity markets is not part of the Fed's "dual mandate" (controlling inflation and unemployment), but I am certain they are aware of the effect monetary policy has on markets. I agree that causing a market rally wasn't the end goal of their their monetary policy (and so perhaps in that sense wasn't deliberate), but they were certainly aware of the likely effect on markets when they implemented that policy.

 

[bmcgonig]

Depends on what you mean by deliberate. Control of equity markets is not part of the Fed's "dual mandate" (controlling inflation and unemployment), but I am certain they are aware of the effect monetary policy has on markets. I agree that causing a market rally wasn't the end goal of their their monetary policy (and so perhaps in that sense wasn't deliberate), but they were certainly aware of the likely effect on markets when they implemented that policy.

If we read the quote again I'm not sure how we interpret it any way but that they deliberately targeted the stock market:

One of the most controversial statements? Fisher candidly admitted, "What the Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect."


Sent from my iPad using Early Retirement Forum

 

[audreyh1]

I don't think the Fed could guarantee a stock market rise, just like they don't directly control long term interest rates even though they influence them. There are other factors, and there is also a global economy - how the US is doing relative to other countries.

That may be Fisher's opinion, but to me it smacks of hindsight being 20/20.

 

[HFWR]

In line with those who think the future is a low return environment. He said that we borrowed future returns to goose the wealth effect.


Sent from my iPad using Early Retirement Forum

I think we've been doing that for quite some time: deficit spending by governments, high debt loads for consumers, low interest rates, deferred infrastructure maintenance...

 

[Gatordoc50]

Easy come, easy go. I am anxious to see how the local real estate market responds to this correction. Housing construction in the past year in Marco Island is booming like never before.

 

[Gatordoc50]

I think we've been doing that for quite some time: deficit spending by governments, high debt loads for consumers, low interest rates, deferred infrastructure maintenance...

+1
We have spent the last fifty years borrowing money to increase our standard of living. At some point we have to pay that back either by lowering our standard of living substantially or increasing GDP substantially.