Summary:
On Thursday, the Fed was surely going to hike rates at its next meeting. By Friday, the markets were convinced that no more rate hikes were coming in 2006. Aside from a psychiatrist, what does the market require? Perhaps only patience, I think. The Fed is just waiting for more data to better ascertain how well the economy is performing and whether inflation will remain contained. Similarly, there's no point for the market to rush to judgment.
On Thursday, the Fed was surely going to hike rates at its next meeting. By Friday, the markets were convinced that no more rate hikes were coming in 2006. Aside from a psychiatrist, what does the market require? Perhaps only patience, I think. The Fed is just waiting for more data to better ascertain how well the economy is performing and whether inflation will remain contained. Similarly, there's no point for the market to rush to judgment.
Investors can be forgiven for feeling shell shocked or subject to whiplash, but that's exactly what happens when they leap to conclusions on the basis of minimal new data. It has been clear for weeks, because the Fed explicitly told us so, that policy changes are now data dependent. Still, that's no excuse for investors to lurch from one extreme.....
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