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Q4 2018

Hi @Cullen,

Despite the economy indicators mostly reflecting that the economy was (very) healthy in 2018, the FED small interest rate increases ceased in Q4 2018 (at about a whopping 2%), when the Markets dropped almost 20% (without even a viral cold flu).

Am I connecting the wrong dots or is the Effective FED Fund Rate have the same effect over the Markets as a Pandemic Virus does?

 

 

Hi Hugo,

I think people infer too much there. Rate increases tend to precede economic downturns because they occur when the economy is hot. In other words, the economy is just more likely to undergo a downturn because the economic expansion is long in the tooth. Same as rate cuts. Rate cuts don't cause the boom. They just happen to precede the boom.

Bottom line, I tend to prefer to think that the Fed responds to things rather than causes things. That doesn't mean the Fed has no impact, but a lot more of his is responsive as opposed to causal.

Hope that helps.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

thanks for taking the time to respond @cullen-roche