UPDATE: Fed officials sound almost glib discussing stock-market correction
By Greg Robb, MarketWatch
The problem is that 'small potatoes' can quickly become larger
With stocks careening downward over the past week, Federal Reserve officials have tried to remain stoic, with one central banker, New York Fed President William Dudley (http://www.marketwatch.com/story/feds-dudley-says-drop-in-stocks-is-small-potatoes-2018-02-08). describing the drop -- as least by mid-day Thursday -- as "small potatoes."
In a similar vein, St. Louis Fed President James Bullard early in the week called the market's fall "the most predicted selloff of all time."
Fed watchers said that Dudley and Bullard might have gone a little too far.
Tim Duy, an economics professor at the University of Oregon, he understood that the Fed was trying to quash talk of a "Powell put" and that the central bank was going to run to the stock market's rescue.
Read:A 'Powell put' for the stock market? Don't even think about it (http://www.marketwatch.com/story/a-powell-put-for-the-stock-market-dont-even-think-about-it-2018-02-05)
However, Dudley's comments translate as: "Quit whining at me. You got lazy making money," Duy said.
"That is not language I would have used. It seemed excessively dismissing of an excessively turbulent environment," he said.
Carl Tannenbaum, chief economist at Northern Trust, said it looked to him like some important lessons about what central bankers should say during market downturns had been forgotten.
"It has been a long time since we've had a 10% correction. Because it has been so long, perhaps our memories of what to say and when to say it may have atrophied," Tannenbaum said.
The problem is that small potatoes can get bigger. To avoid having to comment on every tic in the Dow, it is probably best to say relatively little, he added.
Last week, the Dow Jones Industrial Average suffered the worst percentage decline since the week ending Jan. 8, 2016.
Strategists at Bank of America Merrill Lynch noted that markets might "stop panicking when central banks start panicking."
Read:Analysts want a return to the 'old cautious Fed' (http://www.marketwatch.com/story/the-markets-stop-panicking-when-the-fed-starts-panicking-bank-of-america-merrill-lynch-2018-02-09)
Tom Simons, economist with Jefferies, said it was unrealistic to call for the Fed to try to talk up the markets.
"It is one thing for the Fed to try to talk up markets in March 2009 when they were worried stocks were going to zero," Simons said.
But this week, stocks are simply retreating back to levels seen last November, and that is not nearly the same kind of crisis. And no one last November was calling for the Fed to stop raising rates given the level of stock prices, Simons noted.
Paul Ashworth, chief U.S. economist at Capital Economics, said all week the Fed was speaking as it the stock market decline was just "blowing off the froth" of a slightly-overheated market. The late-day selloff on Thursday may force the central bank to "change the narrative." The Dow fell more than 400 points in the last 30 minutes of the trading session.
Whether the Fed moves "all depends if this is a blip or something more serious," he said.
Investors still see over a 70% chance the Fed will raise interest rates at their next policy meeting on March 20-21 and another by September.
-Greg Robb; 415-439-6400; AskNewswires@dowjones.com
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02-12-18 0926ETCopyright (c) 2018 Dow Jones & Company, Inc.