Macroscope | Tantrums tipped when Fed raises rates, so get on with it
There’s a roughly one-in-three chance the US Federal Reserve increases interest rates later this month and, guess what: the stock market won’t like it.
Friday’s selloff in the Dow Jones industrial average of 272 points, or 1.66 per cent, was analogous to a three-year-old threatening to run away from home. What comes later, as the Fed hike dawns on the market’s young mind, is an old-fashioned “throw your toys out of the playpen” tantrum.
The market will do this, of course, because it has the desired effect.
The numbers on Friday, while including a below-consensus 173,000 headline job-creation number, did very little to disturb the picture of an economy creating jobs at a sufficient rate to raise employment and wages; in other words, one ready for interest rate normalisation.
Stephen Lewis, economist at London’s ADM Investor Services International, wonders to what extent Janet Yellen will recall the advice of famed child-rearing expert Dr Benjamin Spock, who counselled that giving into tantrums only brings on more.
There is a genuine risk of financial markets selling off in a disorderly way when the Fed’s move dawns
“If they do not move, there will be a strong implication, which markets are likely to be quick to draw, that they are taking extraneous factors into account when reaching their policy-decisions,” Lewis said of the Federal Open Market Committee in a note to clients about an hour before the jobs data was released.