Did the Federal Reserve cause the market correction?

[joeea]

The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don't need those anymore. They're not appropriate anymore," Powell said.

"Interest rates are still acommodative, but we're gradually moving to a place where they will be neutral," he added. "We may go past neutral, but we're a long way from neutral at this point, probably."

You wrote "It has been widely reported that Powell's comments were responsible".

So who reported that these comments were responsible for the market drop?

 

[ShokWaveRider]

If I had a buck for every time I heard the market talking heads (and there are a lot of them on CNBC) say "Interest Rate Increases have been priced in" well you know the story. Now everyone is looking for excuses, and who to blame. After all it is the "American Way", someone or something always has to be blamed for anything that happens that someone else does not like. They are fast to grab the credit when things go the other way. We all have done it at some point in our lives. They need to just get over it and move on.

 

[Red Badger]

Oscar. Oscar the Grouch. He tanked the equities. Not gonna get any better until Big Bird steps in.

 

[Free bird]

Does what causes a sell off matter?

 

[HFWR]

Re: China, there was a video piece on the CNBC app, that has since disappeared, wherein the panel, especially Steve Liesman, stated that various China entities were selling equities to raise foreign exchange. There was a mention of possible “retaliation” as well, but the consensus was otherwise.

 

[audreyh1]

You could say that the Federal Reserve is causing the stock market decline by taking away the easy money of the last few years, just like they caused big rallies in 2013 and later by providing easy money and low interest rates through quantitative easing. The US economy was weak and slow to get out of the great recession, and they were fighting periods of deflation, trying to avoid it getting worse.

But I think the Federal Reserve is being responsible by winding down the accommodative policy of the last several years since the US economy has strengthened. And there is just no way to do that without causing some pain.

Some assets got inflated and they are trying to let the air out gently.

 

[easysurfer]

Was just watching a discussion (I think on CNBC) about this very topic. One talking head said "Yeah, the fed caused the correction". Then another guy said, "No as other things too, like the tariffs, are to blame". I had to turn away though when the discussion got heated as I'm not a fan of the raised voices cable stuff.

 

[Crabby Mike]

To be fair, there was only one person at the White House doing that.

Yeah, I was trying to be nice. Don't get me started ...

 

[marko]

But I think the Federal Reserve is being responsible by winding down the accommodative policy of the last several years since the US economy has strengthened. And there is just no way to do that without causing some pain.

.

+1
I look at it from the standpoint that these "corrections"/dips/selloffs are healthy.

In times like these I see the market as a wagon that got unbalanced by any number of factors and suddenly tipped over. Everything spills out into the street and then over time it gets re-loaded and re-balanced and everything tied down again for another ride further down the road.

To continue the analogy, some of the stuff that tumbles into the street is ripe for the taking while everybody is distracted trying to get the wagon upright again and looking the other way.

 

[audreyh1]

In times like these I see the market as a wagon that got unbalanced by any number of factors and suddenly tipped over. Everything spills out into the street and then over time it gets re-loaded and re-balanced and everything tied down again for another ride further down the road.

To continue the analogy, some of the stuff that tumbles into the street is ripe for the taking while everybody is distracted trying to get the wagon upright again and looking the other way.

Good analogy.

Sometimes these markets hit an inflection point where suddenly investors decide that they were wrong about their outlook and a bit of panic ensues because too many people were caught “leaning the wrong way”. It can snowball.

It’s impossible to predict whether such a market event will be just a blip, or a more fundamental change that lasts a while.

 

[ShokWaveRider]

Wait till tomorrow or Monday, it will pop 1400 and all will be forgotten.

 

[GravitySucks]

But I think the Federal Reserve is being responsible by winding down the accommodative policy of the last several years since the US economy has strengthened.

Agree. The 10 year rate has been less than the CPI since 2011.

 

[Free bird]

Remember you are entitled to 10% return per year on your stock market investment.

 

[RobbieB]

And not to lose any dough because there is SPIC insurance...

 

[6miths]

But I think the Federal Reserve is being responsible by winding down the accommodative policy of the last several years since the US economy has strengthened. And there is just no way to do that without causing some pain.

Some assets got inflated and they are trying to let the air out gently.

Agree. If they are to blame for the dip it is more because they are to blame for the incredible run up. Time for more 'historical' interest rates.

 

[marko]

Wait till tomorrow or Monday, it will pop 1400 and all will be forgotten.

I realize it doesn't mean much but as of 9:30 PM tonight (Thursday) Dow futures are up 250.

 

[NW-Bound]

If I had a buck for every time I heard the market talking heads (and there are a lot of them on CNBC) say "Interest Rate Increases have been priced in" well you know the story. Now everyone is looking for excuses, and who to blame...

The rate increase was indeed priced in, but the price we used was wrong.

Agree. If they are to blame for the dip it is more because they are to blame for the incredible run up. Time for more 'historical' interest rates.

... and historical stock return and P/E.

 

[Montecfo]

Except the yield curve started seriously steepening again. That’s what made the stock markets sell off.

This.

Then after selling began it cascaded a bit. Lots of profits to take!

It's a mild selloff in the whole scheme. Healthy I think.

 

[ShokWaveRider]

Wait till tomorrow or Monday, it will pop 1400 and all will be forgotten.

See I was almost right, one drop came back, being 50% right is a great start, does this mean I deserve a seat on CNBC as a prognosticator? I could use the grossly inflated salary.

 

[Dtail]

See I was almost right, one drop came back, being 50% right is a great start, does this mean I deserve a seat on CNBC as a prognosticator? I could use the grossly inflated salary.

Unfortunately you got the smaller drop right.

 

[joeea]

Does what causes a sell off matter?

If it were actually possible to nail down the sole cause, it might be possible to prevent such sell-offs.

I'm not holding my breath.

 

[foxfirev5]

I have no idea what causes anything in the market. It can't be proven. Correlation does not = Causation

 

[samclem]

If it were actually possible to nail down the sole cause, it might be possible to prevent such sell-offs.

Or, even easier, it would certainly be possible to profit from the sell-offs. Or, if you could just identify when a sell off was >not< going to happen, there's money to be made. Fabulous amounts of money, and one would only need to be about 20% better than random chance to turn this into an almost unlimited fortune in short order.
And yet, we see very few people can reliably do that.
Opining about why the market did what it did is a major industry and is fairly risk-free, since the pronouncements are unfalsifiable.

 

[indiajust]

The purpose of a central bank is to fund the government, no matter how wasteful or profligate that government becomes. The consequence is currency destruction, since taxes are visible and eventually opposed, but economists can manipulate policy, create QE and then take trillions right out the front door. Oceans 11 monetary policy, via boredom and PhD quackery.
The Fed inflates the bubbles, but is usually far enough away from the scene of the crime when it pops to avoid the blame. Financial bubbles are unstable, like a pile of loose marbles, stacked beyond the angle of repose. Snow avalanches are a similar analogy. Anything can be the proximate trigger to release the bubble, but the ultimate cause is artificially low cost of money (low interest rates).

 

[racy]

...A small surprise was the yield on the 10 year US bond rose faster than expected. This caused some investors to start to sell equities. Once that ball got rolling I figure automated selling algorithms kicked in and the selling continued. You can see this in the acceleration of selling that happened in the late afternoon hours....I'd bet the market recovers somewhat tomorrow as earnings get reported.

+1 Bingo! (One exception: I'd say bond traders rather than investors).