Fed's George: The stock market is an important price signal for the Fed, not surprised to see volatility
19.05.2022, 12:44

Fed's George: The stock market is an important price signal for the Fed, not surprised to see volatility

The stock market is an important price signal, Kansas City Fed President and FOMC member Ester George said in an interview on CNBC on Thursday, before adding that she is not surprised to see volatility, and this is not to be dismissed, as it is a sign of tighter financial conditions. US equities had their worst day since June 2020 on Wednesday, with the S&P 500 dropping over 4.0% and Nasdaq 100 more than 5.0%. 

Additional Remarks:

Fed policy is not aimed at the stock market, but the effects of policy will be felt there. 

In determining when "enough is enough" in policy tightening, the chief focus is on inflation numbers. 

Households have been in pretty good shape, but people do seem to be feeling trade-offs now with higher prices. 

The Fed will succeed in bringing down inflation, hard to know how much tightening will be needed to make that happen. 

George said she is not sure picking a number around "neutral" is of value in setting rates and that it is better to look at the effects of policy. 

She would "generally expect" real interest rates to be positive. 

It is too soon to pinpoint how high interest rates may need to rise, if consumption changes, for example, the Fed may not need to go as far. 

She is comfortable now doing half point rate increases. 

The Fed would need to see something "very different" to support larger rate increases. 

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