Investors' Fed obsession 'unhealthy'

Economist critiques Fed fixation, urging focus on innovation and profits for real economic growth

Investors' Fed obsession 'unhealthy'

In an observation of the economic landscape surrounding the Federal Reserve’s upcoming meeting, Brian Wesbury, chief economist at First Trust, offers a critical perspective on the market’s fixation with the central bank’s monetary policy decisions.  

Wesbury emphasizes that “investors and analysts will be sifting through Wednesday’s FOMC statement...searching for any signal – real or imagined – about what our central bank will do next.”

This underscores the palpable tension and high stakes tied to the Federal Reserve’s every move, especially regarding interest rate adjustments. Wesbury says such obsession is misplaced.

Wesbury argues, “Instead of an obsession with slight policy shifts out of Washington, DC, investors need to be focused on more important matters, like the process of innovation, entrepreneurial risk-taking, and corporate profits.”

He contends that these elements are the true drivers of stock market valuations, rather than the “vagaries of the short-term interest rate target by the mandarins of money.”

The economic environment has notably shifted since the Federal Reserve’s last meeting, with changes in expectations for rate cuts based on recent inflation reports. Wesbury points out, “As of Friday’s close, the market was expecting only three rate cuts this year,” a significant recalibration from earlier predictions.

This adjustment is a direct response to inflation concerns, highlighted by the rise in consumer prices and the introduction of the “Super Core” inflation measure, which has shown an alarming increase. Amid these economic indicators, there’s speculation about the Federal Reserve’s commitment to its 2.0 percent inflation target.

Wesbury reflects on the potential for change, stating, “Another key issue is whether the Fed will publicly abandon its 2.0 percent target...We think that will happen eventually, but that’s several years from now, not soon.”

This skepticism about the central bank’s inflation goals hints at broader challenges facing monetary policy and economic forecasting.

Wesbury offers sage advice to investors: “Listen to and watch the Fed, but don’t obsess about it.”

He reiterates his belief that the fundamental pillars of innovation, risk-taking, and profitability hold more sway over the economy’s future than the Federal Reserve’s periodic adjustments to monetary policy.