Stock market response to Jackson Hole results draws positive reaction from Neel Kashkari

According to Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis, a plunge in stock market shows that market participants understand the commitment of the Fed and Jerome Powell to curb the inflation.

On Monday, Kashkari spoke about the reaction given by investors to the Powell’s speech, which was represented by sharp decreasing of the market. He said he was “happy” to see it, as he interpreted this as a sign that people started to understand that the Fed and Jerome Powell are determined to bring the inflation back to the 2% level.

The S&P 500 Index declined by almost 3% on the last trading day last week in comparison with the results of the previous day, which is the lowest result since mid-June. At the same time, the 20% increasing of prices, which has taken place over the last two months, cannot be called a definitely good thing, as it indicates a difference between the Fed’s intentions and the market response to those intentions.

As explained by Kashkari, the market increasing after the last meeting wasn’t perceived as something good as it looked like the market participants had misinterpreted the circumstances, while he had known for sure that the Fed had been firm in their decision to slow down the inflation.

Such a reaction from Kashkari has targeted the markets, which are probably too eager to predict and evaluate the policy pivot the Fed aren’t going to make.

The key point of Kashkari’s statements was, however, the necessity for the Fed to move towards more hawkish policy, while being careful with proclaiming victory over the high prices, as it might turn out to be too early. Kashkari noted that the Fed had to learn from the inflation battle in the 70s, when a huge mistake had been made by softening the monetary policy way too early, which had resulted in a new wave of inflation. The Fed cannot make the same mistake again, said Kashkari.

It’s worth noting, though, that the statements were made by Kashkari after he transferred from being one of the Fed’s doves to being its most aggressive hawk. Before that, he stated that he was ready to support the raising of the benchmark interest rate to the level of 3.9% by the end of the current year, and will support the further rise to the level of 4.4% in the next year. Such statements let Kashkari to be viewed as the most hawkish member of the Fed, according to the forecasts published in June. Updated forecast will become available after the Fed meeting scheduled on September, 21.