“ … nothing at the Fed is political.” Neil Kashkari, new head of the Minneapolis Fed
The Federal Reserve Board was designed to be a nonpartisan entity, existing solely for the benefit of the American economy. Apparently, there is a flaw in the design.
During the first debate between presidential candidates Hillary Clinton and Donald Trump, Mr. Trump accused the Federal Reserve Board of keeping interest rates near zero to help Democrats in November, while creating a “big, fat, ugly bubble” that will pop after the election when the central bank raises rates.
According to Ruchir Sharma, chief global strategist for Morgan Stanley, “This riff has some truth to it.”
“Since the Fed began aggressive monetary easing in 2008,” Sharma wrote on Zero Hedge, “my calculations show that nearly 60% of stock market gains have come on those days, once every six weeks, that the Federal Open Market Committee announces its policy decisions.
“Put another way, the S&P 500 index has gained 699 points since January 2008, and 422 of those points came on the 70 Fed announcement days. The average gain on announcement days was 0.49%, or roughly 50 times higher than the average gain of 0.01% on other days.”
It must be a coincidence that gains are 50 times higher on days when the FOMC announces policy decisions.
Sharma’s conclusions are further supported by this chart from Showrealhist.com, which shows an inflation-adjusted Dow Jones Industrial Average. Note the upward surge that began when the Fed began QE in 2008. (more…)