At this moment, the Fed does want stock prices to go sideways or even drop, anything but rise. Why? Because rising stock prices make people feel wealthier and cause them to spend more. This stokes inflation.
Usually, Fed officials don’t comment on the stock market. They are supposed to be steering the broad economy, not stock prices. But Friday, August 26, at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming, Fed Chairman Jerome Powell made it more than clear that clearly that the Fed will not switch to a neutral or rate-lowering stance later this or early next. Essentially, he was trying to get the last bits of optimism out of the stock market.
His effort succeeded. The S&P 500 Index plunged 3.4% immediately and dropped nearly 6% over the next four trading sessions. Of course, Chair Powell said nothing in that speech about the desire for markets to drop. But therefore instead, one of his top deputies Federal Reserve Bank of Minneapolis President Neel Kashkari took a much clearer stance on the subject. He frankly stated that he was satisfied to see how Chair Powell’s Jackson Hole speech was received by the stock market investors and that he clearly was not happy when the market rallied after the Fed’s July 27 interest rate announcement.
It seems the Fed is determined to send stocks lower this year and even into 2023, certainly until inflation, currently running at 8.5% year over year, falls to 4% or less.
Sven Franssen