Fed Hasn’t Seen This Much Intra-Meeting Equity Pain Since 2008

(Bloomberg) -- Selling in U.S. stocks has an ominous historical comparison for Federal Reserve officials debating an interest-rate increase this week. The last time the S&P 500 Index fell this much in the period between two policy gatherings was the collapse of investment bank Lehman Brothers Holdings Inc. in 2008.

Fed Hasn’t Seen This Much Intra-Meeting Equity Pain Since 2008

Notwithstanding President Donald Trump’s increasingly pointed calls for the Fed hold fire on a rate increase, investors continue to overwhelmingly expect it will hike at the conclusion of its two-day meeting on Wednesday in Washington, according to interest rate futures prices.

That said, the stock market has definitely given policy makers something to talk about. The S&P 500 has declined 9.3 percent from the Fed’s last meeting on Nov. 8 through Monday’s close. That’s the biggest intra-meeting slump since the 18.8 percent plunge between its Sept. 16, 2008, meeting, a day after Lehman filed for bankruptcy, and a special gathering announced on Oct. 8. The index fell 23 percent from the September meeting to the next regularly scheduled one on Oct. 28-29.

That equity-price plunge in the early days of the financial crisis was one of just five in the past two decades that were steeper than the current 9.3 percent slide since the last meeting. That’s just more than the 9.2 percent drop between the Dec. 16, 2015, meeting, when the Fed raised rates from near zero for the first time since the crisis, and the first meeting of 2016. Under then-Chair Janet Yellen, policy makers didn’t raise rates until December 2016 amid global financial strains.

It’s exceedingly rare that the Fed raises rates when stocks are behaving this badly, according to data complied by Bloomberg News. In addition, financial conditions have tightened since early October with a Bloomberg measure now in negative territory, indicating that financing costs and risk aversion are now a headwind for the economy.

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