Consumers Signaled Fed Was Too Slow To Act, Now Saying Too Fast

By Vincent Cignarella, Bloomberg Markets Live commentator and reporter

The US consumer drives over 70% of economic growth. In 2008, the Fed started telling consumers how to think. That has led to policy errors and significant volatility for risk assets.

University of Michigan Consumer Sentiment and the fed funds rate at one time moved pretty much in sync. But in 2008, monetary policy remained loose for way too long even as sentiment was rising — a policy many have pointed to as the Fed inflating risk assets. Fed policy remained loose until 2016 even as consumer sentiment was rising.

Now the disconnect between the Fed and consumer sentiment appears to suggest they are repeating the mistake by hiking too fast. The Fed is set to hike rates at month-end even as the consumer is suggesting we are headed for a recession.

The result is likely a continuation of the selloff for stocks in July and a rebound for bonds.