Home Morning Commentary Will Central Bankers Stop the Volatility?

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Whenever we talk about increased volatility, you can bet that the market is falling.  For some reason, when the market is rallying, volume and volatility decrease.  Currently, the exact opposite is happening: volume and volatility are spiking.  So with the markets down, people are wondering if the central bankers across the world will somehow stop the decline by instituting another QE of some kind.  

According to the assortment of statements below, the answer is no.

When asked about the markets and what it would mean for the overall economy if it became bearish, outgoing Fed Chair Yellen said “The financial system is much better capitalized. The banking system is more resilient,” the former US central banker added, listing her accomplishments. “I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

“I think it’s basically a market event, and these things can be healthy. I don’t think it will have economic implications. 2018 will be a strong year in America. We’re at or near full employment. I continue to expect three rate hikes this year.” – Robert Kaplan, Dallas Fed president.

“This is the most predicted selloff of all time because the markets have been up so much and they have had so many days in a row without meaningful down days. Something that has gone up 40% like the S&P tech sector would at some point have a selloff.” – James Bullard, Philly Fed president.

“An equity rout like the one that occurred in recent days has virtually no consequence for the economic outlook.” – Bill Dudley, NY Fed president.

Apparently this theme is shared overseas. “the recent drop in equities is a normalization, a reasonable wake-up signal to show that stock markets can’t just keep rising all the time. Behind [the drop] there is an expectation in markets that central banks will increasingly raise interest rates, and there are certain good reasons for that. The U.S. is expanding. However, one has to say that the task of central banks isn’t to satisfy markets but to ensure overall economic stability. So if necessary, interest rates will have to rise and markets will adapt to that.” – Ewald Nowotny, Austrian Central Bank and ECB member.

This is interesting.  They’re saying that they will not be coming to the rescue. We’ll have to revisit the issue in the future if the markets keep falling. I believe that they will change their statements then.


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