by The Nasdaq index gained 2.1% as the markets closed on Wednesday and ended a seven-session loss that frustrated those advocating to buy the dip. But it appears like the Federal Reserve is really not ready to see the stock market surging. It is common to see sharp reversals either upwardly or lower in a non-liquid bearish market.
The Stock Market Rally
The market rally stage on Wednesday came despite the Federal Reserve’s efforts to double down on its mission to bring inflation to a halt. The Wall Street Journal published a report before the market opened on Wednesday as it caught investors’ attention. It suggested the Federal Reserve will increase interest rates by 75 basis points again later in the month.
If that happens, it will just be a continuation of the Federal Reserve’s policy trajectory to combat inflation by bringing down whatever stands in the way. In this situation, that means making financial situations more stringent.
Basically, the definition of a stringent financial situation is a very strong Dollar. It also includes low share prices. Bullish traders might want to get more familiar with that as they fight the Federal Reserve.
All things being equal, a more stringent financial situation will need consumers and investors to become more decisive about their expenditures and borrowing. The Chairman of the Federal Reserve, Jerome Powell, stated bluntly at the Jackson Hole conference that the Reserve will increase rates if inflation is brought down.
Feds Might Benefit from a Strong Dollar
The President of the Minneapolis Federal Reserve reportedly prefers this current market condition to the events after the Federal Open Market Committee meeting in July. It was a rally in the stock market that pushed Nasdaq beyond 4% and S & P 500 by 2.6%.
The Fed President, Neel Kashkari, told the media that he was not very excited after seeing the stock market rally following the Federal Open Market Committee meeting in July.
Although the Federal Reserve has the mandate to maintain the country’s economic stability, it does not have a mandate over the S & P 500 yet.
The stringent financial measures the Federal Reserve is holding on to have important impacts to fulfill in the fight against inflation. A strong Dollar would increase purchasing power for consumers, cut the cost of commodities globally, and that would help reduce the price of inputs. All these are what might be beneficial to the Federal Reserve since they signal disinflation.
