Tim Duy, Columnist

Doubting the Fed’s Resolve Is a Losing Proposition

Falling stocks, rising rates and a strengthening dollar are all signs the central bank’s plan to tighten financial conditions is working

November 1, 2018 at 5:00 PM UTC

By Tim Duy

Tim Duy is a professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of Tim Duy's Fed Watch.

The stock market had a terrible October.
Photographer: Spencer Platt/Getty Images North America

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It’s been a tough few weeks on Wall Street. Equity markets have struggled, with the S&P 500 Index down almost 10 percent from its Sept. 20 record high before finally finding what may be a floor. As is always the case when stocks struggle, market participants start to doubt the Federal Reserve’s resolve. Don’t.

While the turmoil has triggered a small reduction in the market’s pricing of Fed interest-rate increases going forward, the tumble in stocks falls short of that necessary to dissuade the central bank from continuing its path of gradual hikes. Barring a more significant disruption in financial markets, the Fed will resist sending dovish signals as long as labor market strength looks likely to continue. Incoming data suggests this continues to be the case.