Despite what some reports say, U.S. stocks are plunging because of problems abroad
In case you haven't noticed, the stock market isn't having a great day. The Dow Jones Industrial Average was off by about 360 points or 3.3% by around lunchtime. Other major indices are experiencing similar, but slightly smaller, declines. Most news on the market's plunge indicates that now that the market had some time to sleep on yesterday's Federal Reserve monetary policy statement, it's very worried about the economy. As usual, the media's vast oversimplification of stock market moves got it wrong again. The Fed has little to do with it: Europe is on the brink.
The Fed's Statement
Let's look at the Fed's prognosis of the economy that some say has investors so shaken. Here are the two blurbs that matter:
The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased.
The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.
In short, the Fed went from saying that 'downside risks have increased" in August to saying yesterday that "there are significant downside risks" and notes strains in global financial markets. Is this latter revelation really so surprising? Really, is it a revelation at all? Market watchers should already know this.