Wealth curve

rare! The Fed discussed the US stock market plunge at the en

Trump repeatedly criticized the Fed last year, saying they ignored the market. In this regard, the Fed basically did not respond positively. Now, Fed officials have finally discussed the market at the interest rate meeting.
In the minutes of the January Fed meeting released on Wednesday, officials cited a series of reasons explaining why the US stock market almost fell into the technical bear market at the end of last year.
According to the Fed's meeting minutes shortcomings, the reasons for the stock market crash mentioned by officials include the following:
The liquidity at the end of the year is too poor - the financial market volatility in December has been exacerbated, and the liquidity at the end of the year Thin and intensified. Some market participants emphasized that declining liquidity has played a role in exacerbating changes in financial market conditions. They also stressed that financial market structures or behaviors that may lead to tight liquidity need to be monitored.
The Fed is not sure how bad the global economy is - media reports suggest that the FOMC meeting in December showed that officials are not fully aware of the tightening of financial markets in recent months and the weakening of the global economy. The impact of the US economy. Subsequently, the communication between Fed officials and market participants was understood as the Fed will patiently assess the recent economic and financial market conditions.
Emotional Deterioration - Market participants believe that factors including FOMC communication, weaker-than-expected data, uncertainty in trade policy, partial closure of the federal government, and concerns about corporate earnings prospects are all leading to the end of the year. The reason for the deterioration of market risk sentiment during the period.
A small number of investors are worried about quantitative tightening - according to media reports, some investors are convinced that the Fed's contraction action puts a lot of pressure on the price of risky assets. Investment decisions made by these investors may have had a huge impact on market prices, especially at the end of the year when liquidity tightened. Some investors may understand the previous FOMC communication as a very high threshold before the FOMC is willing to adjust the contraction policy.
The situation may be even worse – some participants have noticed that if financial market tightening occurs in periods when macroeconomic conditions are less favorable, then this situation may continue or spread.
Worried about financial market volatility
In assessing financial stability, a number of Fed officials expressed concern about the volatility of financial markets at the end of last year and the apparent willingness of investors to take risks.
Participants pointed out thatFinancial asset prices are sensitive to information on international trade policies, domestic fiscal and monetary policies, and global economic growth prospects. They agreed that it is important to continue to monitor changes in financial markets and assess their impact on the economic outlook.
Several participants emphasized that reducing liquidity at the end of the year may exacerbate environmental changes in financial markets and require monitoring of market outcomes or operations that may contribute to liquidity. A few participants emphasized that it is important to ensure that financial institutions can withstand negative market events.
For the media report, the “quantitative tightening” action of the Fed's contraction was regarded as an important factor in the stock market decline at the end of last year. The participating officials raised many questions.
The minutes show that although some investigators have reported that they expect the contraction to exert a slight upward pressure on the yield of US Treasury bonds, overall, they did not regard the contraction as the main cause of the deterioration of risk sentiment. But some investors are convinced that shrinking is a factor that strongly weighs the price of risky assets.
Fed officials also discussed a speculation: investors may have accepted some signals of future interest rate paths because they feel that the Fed is reluctant to adjust the pace of shrinking based on economic and financial changes.
The minutes of the meeting showed that Fed officials believe that in the face of multiple economic prospects, monetary policy actions should be patient, and almost all unanimously support this year’s plan to stop reducing the size of the balance sheet (shrinking) and release This year is expected to end the signal of shrinking the table.