U.S.: The New Ingredient In The Fed's Mix

A tighter link between growth and stock prices complicates policy

The stock market is not a target of Fed policy. Federal Reserve Board Chairman Alan Greenspan said just that--twice, in fact--in his Jan. 20 congressional testimony. "Our objective," he said, "is maximum sustainable growth of the U.S. economy, not particular levels of asset prices." But there's a problem. Because economic growth and stock prices are now connected unlike at any time since the Roaring '20s, any Fed move directed at either preserving or limiting growth will be magnified by the stock market's reaction.

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