“We’re in a situation right now that the Fed will have to look at asset prices before they look at economic activity,” he said. “It’s a difficult position.”
Through Wednesday, the S&P 500 SPX, -0.74% was down 7.3% since the end of the third quarter, leaving it with a 1.1% year-to-date gain. The Dow Jones Industrial Average DJIA, -0.69% DJIA, -0.69% was off 5.2% in the quarter to date. A selloff in tech shares has left the Nasdaq Composite COMP, -0.45% off more than 11% in the third quarter. Stocks were adding to losses on Thursday.
The Fed is widely expected to deliver its fourth rate increase of 2018 in December, lifting the fed-funds rate to a range of 2.25% to 2.5%, and to continue raising rates in 2019. President Donald Trump has repeatedly criticized the Fed, charging that it has been overly aggressive in raising rates. Some economists and market bears have argued that fears the Fed will overshoot on tightening have contributed to this fall’s market weakness and raises the risk of triggering an economic slowdown as early as next year.
The Fed’s defenders, however, argue that underlying data remains strong and that with the economy at full employment and inflation at the central bank’s target, policy makers have little choice but to continue a gradual tightening. In addition, heavy fiscal stimulus in the form of deficit-widening tax cuts and additional government spending also speak to pressure on the Fed to continue slowly tightening policy.
Federal Reserve Chairman Jerome Powell, in a public conversation with Dallas Fed President Robert Kaplan, sounded committed to the gradual interest-rate-hike path he’s previously communicated, but did twice note that the global economy was slowing — a phenomenon he described as “concerning.”