Fed Shadow Rate at 5.45% Shows Stock Rout Justified: SocGen
- U.S. central bank tightened more than in past, strategist says
- Shadow rate accounts for tightening from Fed’s QE reversal
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The worst monthly sell-off in stocks since the global financial crisis was justified given that the Federal Reserve has tightened overall monetary policy more than in past episodes, according to Societe Generale SA.
While the Fed’s policy target at a range of 2.25 to 2.5 percent is less than half its pre-crisis level, the true magnitude of tightening needs to account for the withdrawal of quantitative easing. That’s according to a concept called the shadow rate, which incorporates an estimated 3 percentage points of implicit rate hikes from 2014 until 2015 -- between the end of the Fed’s bond-purchase program and the start of boosting the benchmark interest rate proper.