The BCA Research writes,
``The sharp drop in the University of Michigan’s survey of consumer confidence late last week is somewhat worrisome because consumer confidence was already historically depressed. But the University of Michigan survey is highly correlated with the performance of stock prices and given the recent losses, the drop in confidence is hardly surprising.”
The tone of the commentary reminds us why US policymakers see the actions of the stockmarkets as vital indicators of the economy...
In 2000, yet as member of the academe, incumbent Federal Chair Ben Bernanke gave us a clue of his policy directions.... (bold emphasis mine)
A closer look reveals that the economic repercussions of a stock market crash depend less on the severity of the crash itself than on the response of economic policymakers, particularly central bankers....
There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.
Of course the basic reason for this is anchored on the belief that confidence is fundamentally a function of “animal spirits”.
Thus, as we have been saying before, the Fed is sensitive to the actions of the stock market, and will use its alleged bureaucratic “smartness” in terms of policy response to influence its directions in order to manage the animal spirits.
The simple and more direct way to say it is that any sustained meaningful retrenchment in the price levels of the US stock markets would prompt for the liberal use of the printing press.
And the net effect of such actions is to have distinct relative pricing elsewhere in the economy or financial markets.
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