Daily Agenda: Dissension at the Fed as Markets Remain Nervous

by Andrew Barber

As the dust settled after the Federal Reserve’s Thursday announcement, three hawkish voices could be heard, with FOMC member and San Francisco Fed President John Williams reiterating his view that rates should rise in 2015, and non-voting-committee member James Bullard and Jeffrey Lacker of the bank’s St. Louis and Richmond branches, respectively, arguing that current growth justifies a hike. The trio, speaking at separate events over the weekend, noted that a single 25-basis-point increase in benchmark lending rates is far from restrictive by any historical measure and that, in their view, the risks of staying too long at ultra-accommodative levels now outweigh the potential reward. Meanwhile, market analysts voiced concerns that volatility across risk assets on Thursday and Friday represented uncertainty after a failure by Fed policymakers to clearly articulate the bank’s thinking ahead of the announcement and, perhaps unintentionally, feed fears that a slowdown in emerging markets threatens growth at home.

At least one observer ascribed Friday’s selloff in U.S. equities to less complex market psychology: Asbury Research strategist John Kosar noted throughout the week that unusual flows into the S&P 500 ETF SPY had made the market top-heavy in the near-term and later called Friday’s selloff to a Jenga-like reaction by short-term speculators disappointed when no rally arrived after the Fed stayed put.

Asbury Research subscribers can get more details and corresponding charts pertaining to recent investor asset flows into the S&P 500 SPDR (SPY) in our September 16th report, entitled Investors Betting On A Market-Friendly Resolution To This Week’s Fed Meeting.

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