What FOMC Meeting? Fed Stress Tests Show Stable Banks

The consternation over the Federal Open Market Committee meeting last week seems about as a relevant as yesterday’s papers. The week began and finished strong, with the S&P 500 twice touching a new all-time-high. Rates appeared greatly subdued by the sweet nothings whispered into its ear by the Fed. The market appeared to interpret the Fed’s activities as hawkish, however, as my colleague Brian Rauscher astutely pointed out as evidenced both by the dot plot and by public statements the majority of Fed governors are clearly dovish and will thus still be calling the shots.

Why is this important? The Federal Reserve is an extremely collegial body with a pretty unique way of doing things. The Chairman has a unique duty to listen to every governor intently, but there are a number of ways outlier opinions are subdued. The consensus-minded Chairman always has the unique power of setting the policy options at meetings and control of the agenda is a subtle, but powerful tool. The Fed Chairman, as far as financial markets are concerned, essentially has an even larger bully pulpit than the President of the United States in the majority of situations.

So, was the market’s interpretation of the Fed’s activity as more hawkish potentially incorrect? It is certainly a possibility, but ...
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