On Wednesday, the Federal Reserve raised its policy rate of interest by 25 basis points bringing the target range to 5.00 percent-5.25 percent.
This brought the effective Federal Funds rate up to 5.08 percent.
It was the tenth move since the middle of March 2022.
Market expectations, after the Fed’s statement was discussed, were that this was probably the last Fed interest rates move for a while.
Here is the picture.
Federal Funds Effective Rate (Federal Reserve)
Wednesday the stock market ended down for the day.
The Dow Jones Industrial Average dropped 270 points and the S&P 500 Stock Index fell 56 points.
Thursday, no new information was released and the Dow Jones dropped another 287 points and the S&P fell by 30 points.
Then Friday hit.
On Friday we learned that 253,000 new jobs were added to the labor market in April and in April the unemployment rate dropped to 3.4 percent.
One had to go back to 1969 to get such a low unemployment rate.
And, the stock market rose.
The Dow Jones Industrial Average rose by 520 points!
The Standard & Poor’s 500 Stock Index rose by 75 basis points!
Wow! What a week!
The results show us what a mixed up world we are now living in.
The Strength
The labor market has shown a strength that very few imagined would did not see coming. It has been very, very tight since early in 2021. Employers tried to reverse the sudden mass layoffs that took place then and then tried to maneuver around the massive shifts in just where the demand for goods moved.
This was just one indication of how unusual the times were.
And, there were more.
Yet, there still is a lot of negative thought.
A recession is still expected.
How deep and severe the recession might be is still a major question.
Employers say they are being careful and strategic in adding more and more people to their organizations, yet they still work with caution because of all the great uncertainty that is around.
The Fed
And, still there is the Fed.
The Federal Reserve is cause of most of the volatility in the economy.
We see it in the events of the week.
The Fed moved on Wednesday to raise its policy rate of interest. But the feeling was that the Fed would stop raising its policy rate of interest. The stock market fell on Wednesday and Thursday.
The jobs report came out on Friday. The economy was stronger than expected.
Good news, the Federal Reserve would now have to raise its policy rate of interest again.
The stock market rose and had a very strong day.
Sure this all makes sense. It all depends upon what the Federal Reserve is expected to do.
But, no it doesn’t make sense.
If the Federal Reserve is expected to stop raising its policy rate of interest, the stock market should go up. Right!
If the Federal Reserve is expected to raise its policy rate of interest further, the stock market should go down. Right!
But, perhaps the most important part about all this focus upon the Federal Reserve is…that we shouldn’t even need to pay so much attention to what Federal Reserve is and what Federal Reserve officials are saying.
The Federal Reserve should not be getting all of this attention!
The Federal Reserve has brought us to this position and now the Federal Reserve is going to have to deal with it.
When the Federal Reserve takes over the headlines, we…investors…are in trouble.
The economy is heading for trouble.
And, the Federal Reserve is going to remain in the headlines because they are going to have to, in one way or another, contribute to getting us out of the mess they have gotten us into.
Where is the stock market going?
Well, first you tell me what the Federal Reserve is going to do.
The Federal Reserve seems to be doing what it told us it was going to do.
Yet, the investment community is all over the place.
You get one story from the Wall Street Journal. You get another story from the New York Times. And, you get another story from the Financial Times.
And, the market swings down. The market swings up.
To me, this is the result of how the Federal Reserve has gone about its business over the last few years.
We are in a mess.
Furthermore, I don’t see us getting out of this mess for some time.
This is not a good place to be.
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