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Federal Reserve Watch: Stock Market Didn't Like Something

Jun. 11, 2020 11:28 AM ET14 Comments
John M. Mason profile picture
John M. Mason


  • After an initial rise, the stock market declined following the release of the actions of the Federal Reserve's meeting of the Federal Open Market Committee.
  • Seems that what the Fed had to say contradicted some of the optimism of investors relative to the speed of the hoped-for economic recovery.
  • Fed Chair Jerome Powell indicated that the Fed's policy rate of interest might not be raised for a long time, even years, because of the slowness of any economic rebound.

Right after the Federal Reserve released information about the meeting of the Federal Open Market Committee Meeting on Wednesday, the stock market rose.

The value of the US dollar in foreign exchange markets also strengthened.

This has been what these two markets have done over the past year or more. The information built into such moves was that the investment community liked what the Federal Reserve was doing and the actions of the Fed just confirmed the reason for their trust in Fed Chair Jerome Powell and his fellow voting members of the FOMC.

But, then something else happened.

The S&P 500 Sock Index, which had initially risen after the Fed’s announcement, fell and closed down 17 points for the day.

Furthermore, the value of the dollar turned around and closed weaker for the day.

What happened?

Two Things Stand Out

In my view, two things stand out in the Fed’s announcement and following press conference.

First, Mr. Powell stated in the press conference:

We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.”

The FOMC statement:

the Committee decided to maintain the target range for the federal funds rate at 0 to ¼ percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

In terms of the Fed's projections, the median forecast for the Federal Funds rate is 0.1 percent for 2020, 2021, and 2022.

That is quite a long time!

The Second Thing

The second thing that stood out in the Fed’s presentations have to do with the response of the economy.

Projections for real GDP show that Fed officials believe that the range of outcomes in 2020 will be

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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