A new Federal Reserve paper indicates policy makers have a different take on financial conditions than widely assumed. That’s a big deal for stock-market investors, said economists at Evercore ISI, in a Wednesday note.
The Fed paper describes “financial conditions” as a “somewhat vague economic concept” that typically refers to a constellation of asset prices and interest rates that are influenced by a variety of factors — including monetary policy — and have the potential to affect the real economy. Some market watchers had expected more concern from Powell, given past griping that easing conditions undercut the Fed’s inflation-fighting efforts. Indeed, Powell’s earlier remarks had led some market watchers to warn that big stock-market gains would spark more aggressive Fed interest hikes.
In particular the Fed puts more weight on a variety of interest rates, incorporating mortgage rates and corporate credit yields, and less weight on the level of the stock market than the index produced by Goldman Sachs, they said.
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