The market response is meh

US and European stock gauges are lower after a mixed Asian session as investors give a cautious response to the Federal Reserve leaving interest rates at record lows.

That’s from the FT.  You do not, however, have to infer that the Fed’s recent decision to keep rates at zero, and signal ongoing dovishness, did not matter.  In part the decision also signaled a Fed belief in global weakness, and it signaled a pessimistic Fed stance on China.  Whether or not traders look to the Fed for superior knowledge, the beliefs of the Fed may be a relevant “sunspot” which traders respond to.  Here is my recent post on the paradox of no market response, very timely I would say.

That all said, I still do not see the market response as validating the view that an enormous amount was at stake with this decision.  And note the two-year rate went crazy once the press conference was underway, so the observed extent of dovishness from the Fed was truly a market surprise.

Update: Markets are now down around the world.

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