Investors’ read of Fed questionable

NEW YORK – Wall Street could be wrong about the Federal Reserve – in more ways than one.

Stocks rocketed higher after the Jan. 3 release of minutes from Fed policy-makers’ most recent meeting. Investors interpreted the minutes to mean the end of the central bank’s 18-month streak of short-term interest rate hikes is near; the major indexes subsequently hit new 4 1/2-year highs on the assumption that once the Fed is finished raising rates, stocks will soar even higher.

The Fed minutes dropped language contained in previous statements that described interest rates as being too low, or accommodative. And the minutes said Fed policy-makers differed on how many further rate hikes may be needed.

What they didn’t say was, “We’re wrapping this up.”

Instead, Business Week’s interpretation of the notes put it succinctly: “We’re not sure.”

This interpretation was bolstered by a Jan. 9 speech by Atlanta Federal Reserve president Jack Guynn.

“Given the steady diet of ‘measured’ rate hikes the Fed has provided in the past year and a half, many of you may be wondering when enough is enough,” Guynn said. “Let me first respond by saying, the closer we get, the less explicit we can be on that point; it’s my personal opinion that as policy-makers we should resist the temptation to say more than we know at any given time.”