What’s The Message From The Fed?

Fed officials have sounded sounded more upbeat on the economy than Yellen sounded last week.

Dow futures are down about 60 points in pre-opening trading. Oil fell below $40 on Wednesday and below $39 on Thursday morning. Traders now seem more interested in oil as it declines.

This eagerness to look for problems that aren’t there suggests traders and investors remain bearish and are looking for the dark cloud in the silver lining.

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Some pundits are also attributing the market’s weakness to the Fed. At their recent appearances, five Fed officials have sounded more upbeat on the economy and made it clear an April tightening was on the table. It sounds as if they were at a different meeting than the one that took place last week. Analysts are speculating Fed chair Janet Yellen asked the Fed officials who spoke this week to send a message to correct the market’s interpretation of last week’s Fed result.

That might be true, but I think the Fed’s message, or at least Yellen’s message, was very clear: She is cautious to an extreme. Perhaps the only thing the Fed and Yellen wanted to get across this week was that any future meeting is an opportunity for the Fed to take action. April remains highly unlikely, but the Fed does not want that option taken away by the markets.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

March 24, 2016

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