Economist: The Federal Reserve should be held responsible for the historic stock market crash!
Economists believe that the Federal Reserve should take responsibility for the historic stock market crash. Market experts point out that the Federal Reserve is lagging behind the situation and recommend a 150 basis point rate cut in the next two months. Strategists at Morgan Stanley stated that failure to cut rates by the Federal Reserve will drag down economic growth in the second half of the year, and that any upcoming rate cuts may not be sufficient to address economic challenges. The Federal Reserve may be intending to signal to the market that despite facing a potential recession, it remains determined to control inflation. In any case, the market has already conveyed a clear message
More and more market experts believe that the Federal Reserve should be held responsible for the historic stock market plunge since last week.
Since the Federal Reserve kept interest rates unchanged at 5.25%-5.50% during its policy meeting last week, the S&P 500 index has fallen by up to 7%. During the same period, the Nasdaq 100 index has fallen by up to 10%.
Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, said in an interview on Monday that the Federal Reserve is far behind the curve and advocated for a 150 basis point rate cut in the next two months.
Siegel stated: "I am calling for an immediate emergency rate cut of 75 basis points, while hinting at another 75 basis point cut at the next meeting in September, which is the minimum requirement."
Siegel said: "I believe this economic slowdown is not due to election conditions, nor is it a problem with Iran or Japan. I believe the problem lies in the Federal Reserve building in Washington, D.C., that is the root cause."
Mislav Matejka, a strategist at Morgan Stanley, stated in a report on Monday that the lack of rate cuts by the Federal Reserve in the first half of the year will weigh on economic growth in the second half, and any upcoming rate cuts may not be sufficient to address economic challenges. He said: "The Fed will start easing monetary policy, but more out of reactive considerations, as a response to the weakening economic growth, meaning it may still lag behind the curve."
However, despite the Federal Reserve possibly "lagging behind the curve," this may be intentional. This is because Powell wants to show the market that even in the face of a potential recession, he remains determined to control inflation, much like former Fed Chairman Paul Volcker did in the 1980s.
Nicholas Colas, co-founder of DataTrek, wrote in a report on Monday: "Powell has faced far less pressure than Volcker so far, but he still needs to convey the same message. Seemingly lagging behind the curve also helps Powell and the Federal Open Market Committee (FOMC) counter the view that their potential rate cuts will be influenced by political motives."
Regardless of the motivation behind the Fed waiting until September to hint at rate cuts, the market has sent a very clear message.
John Lynch, Chief Investment Strategist at Conning, stated: " More and more people believe that the Fed's rate cuts are too late and are now behind the curve."