Brainard’s speech followed comments by Boston Fed President Eric Rosengren, who said last week that the US economy could overheat if the central bank waited too long to raise interest rates, potentially spurring a global rout in equities.
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Global stock markets tumbled yesterday as investors fretted over the possibility of an imminent U.S. interest rate hike and reacted to the weekend health problems of United States presidential candidate Hillary Clinton.
Futures point to a mixed open for Asian shares, after a dovish speech from Federal Reserve Governor Lael Brainard drove US equities higher.
In Toronto, the S&P/TSX composite index climbed 57.14 points to 14,597.14, while in NY, the Dow Jones industrial average surged 239.62 points at 18,325.07. The steepening yield curve “reflects more faith in the amount of growth the economy can have, the amount of inflation that the economy can have, or the likelihood that the Fed will stay lower for longer”, Kohli said. Since 1928, there have only been 35 prior instances in which the S&P fell 2%+ on a Friday and then bounced back with a 1%+ gain on the first trading day the following week.
A number of top Fed officials have hinted at a possible raise at the central bank’s next policy-setting meeting on September 20-21. Economic weakness “counsels prudence”, she said.
The Fed will have a two-day meeting next week. From mid-February to the close on September 8, stock prices rose by 16 percent.
While stocks, bonds, and oil were plunging on interest rate fears Friday, an experienced fund manager who has compared gold to wampum announced that he was buying gold for his clients.
After the USA stock crash of 2.5 percent on Friday, September 9, Wall Street woke up to the risk of “Two Bumps and a Stumble” – i.e. when it takes two interest rate hikes to generate a market reaction.
“Brainard’s comments will be of particular interest as she is the only voter on the FOMC this year”, said Craig Erlam, senior market analyst at Oanda. Japan’s benchmark Nikkei 225 index lost 1.7 percent and South Korea’s Kospi slid 2.3 percent.
The yen gained as the Australian and New Zealand dollars held declines amid growing wariness over prospects the Federal Reserve will raise rates at this month’s meeting. The stock was the top percentage gainer on the S&P.
Instead, Brainard marshaled all of the best arguments the doves have for holding rates steady at the Fed’s meeting on September 20-21.
BONDS, CURRENCIES: Bond prices didn’t move much, and the yield on the 10-year Treasury note remained 1.68 percent.
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In addition to the comments by Rosengren, a usually dovish Fed Governor, Daniel Tarullo, also signaled his openness to a 2016 increase in a television interview.
