Markman Capital Insight

How to Stop Worrying About the Fed and Love Markets

By now you may know my feeling about Fed officials’ comments. They are all coordinated by the central bank to make sure that both sides of the debate are represented. The only person who will truly make the final decision is the chair, Janet Yellen. All the rest of the chatter is noise.

Thus it is not terribly surprising two regional Fed Presidents were recently out on the rubber chicken circuit offering sharply contrasting outlooks on the very same day.

San Francisco Fed President John Williams noted in public comments that the Fed will get two more months of data, including jobs reports for April and May, and if data were good enough the Fed could hike rates as soon as June. Williams has regularly warned against acting too late on policy.

Meanwhile Chicago Fed President Charles Evans reiterated his belief that, “It likely will not be appropriate to begin raising the federal funds rate until sometime in early 2016.”

This is not to suggest that the noise is always uneventful. Last week Fed Chair Yellen herself set a bonfire of stock values when she offered an off-handed comment that equity valuations appear "quite high." Given that statement was made during a Q&A session at an IMF event that had nothing to with the stock market, it's a little unclear whether it just popped out of her mouth, or she meant to say it, but it definitely did move the markets. Well, at least for a day or so.

The bottom line is Fed leaders rarely comment on the stock market and when they do, the impact is usually short-lived. The most memorable time a Fed chair talked about the market was Alan Greenspan's immortal musing about "irrational exuberance" in a December 1996 speech. The Nasdaq 100 literally rose 435% over the next three years from that point to show him what real exuberance looked like.