How The US Federal Reserve Is The Beneficiary Of Stock Market Growth
Geopolitical conflicts leading to a possible World War III, massive supply chain disruption causing widespread inflation, a lingering pandemic, and more have changed the mood across markets to panic and fear. The eventual collapse of the stock market and a possible recession in the US and the rest of the world has become a widely popular topic of discussion in mainstream media publications and newspapers. The reality is that readers are always hungry for more doom and gloom.
Perhaps the allure of a major crash lies in the fact that many missed out on the rally that began in March 2020 when the pandemic first hit and rewarded those who bought the blood in the streets that fateful Black Thursday. A historic uptrend in the stock market and record growth in cryptocurrencies like Bitcoin followed. However, no matter how much latecomers might be drooling over another major collapse, the US stock market has an unstoppably strong sponsor or growth: the United States Federal Reserve.
In this article, we take an in-depth look at how the Federal Reserve is the biggest beneficiary of stock market growth which is a direct result of the strings its members pull as part of US monetary policy. Enough has already been stated regarding the ultra-soft monetary policy that was designed to stimulate the economy following the onset of the pandemic and support job growth in the US. Instead, we are focusing on the accusations of widespread insider trading by US Federal Reserve officials and why they won’t let the stock market crash with tens of millions of dollars in their own investments at stake.
The United States Federal Reserve Board Of Insider Traders
In the fall of 2020, Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan resigned amid suspicions over insider trading. It was later uncovered that Kaplan had been knee-deep in investments in companies like Apple, Amazon, Tesla, Alibaba, Google, Facebook, and other companies while voting for monetary policy that would allow such investments to thrive.
The Federal Reserve Chairman Jerome Powell claims he was unaware of the specifics of their actions and was even suspected of insider trading of his own. He allegedly traded millions of dollars worth of Vanguard Total Stock Market Index, as well as smaller stakes of Causeway International Value Fund, the Goldman Sachs U.S. Equity Dividend and Premium Fund, the iShares MSCI EAFE ETF, and the iShares Russell 2000 ETF.
Powell avoided answering the charges when pressed by reporters on the subject during a post FOMC meeting press conference. US Senator Elizabeth Warren sent a note to Powell and the rest of the Fed presidents calling for tighter restrictions and more transparency around such transactions. However, the issue remains without proper regulatory consideration or scrutiny.
Fed Stimulus Keeps Economy Strong, Less Rate Hikes Possible
Ultimately, the pandemic, record-high inflation, geopolitical chaos, supply chain disruptions, and many other factors have all failed to produce a worthy collapse in the US stock market. In hindsight, the most recent selloff appears to be a correction, which could further embolden bullish investors.
Adding to the positive outlook, when the Federal Reserve raised interest rates on March 16, Fed Chair Jerome Powell made several statements regarding the strength and stability of the US economy. Powell believes that the Fed wields the tools necessary to curb inflation and expects it to go down further by the second half of the year. Furthermore, Powell says the US labour market is getting stronger, and the supply chain is improving.
Despite the fact that markets have priced in the expectation of five to six rate hikes in 2022, Powell stated that the Fed would not act emotionally but would base any decisions on data. It is likely that after each increase, the Fed will take a break for at least one meeting to consider the reaction to the previous increase before adding fuel to any possible fire. With only six meetings remaining in the calendar year, at most, the Fed might raise rates three or four times – but not the five or six the market has been anticipating.
Powell’s Positive Message And PrimeXBT Keep The Bull Market Roaring
The more lax stance by the Fed than expected resulted in a strong rebound across markets, which could lead to a more sustained rise with uncertainty out of the way. The US and other global economies are very closely tied to the performance of the US stock market, in which even the Federal Reserve board members are heavily invested.
Accordingly, the Fed is in a position where it cannot allow markets to collapse under any circumstances. It also proves that the current correction is an excellent incentive to buy into the world’s leading stock market indices, as well as any cryptocurrencies like Bitcoin that have a high correlation with the stock market.
To take advantage of the possible bull market set up the Federal Reserve is creating, consider opening a leveraged long position with PrimeXBT. The award-winning margin trading platform provides long and short positions on forex, crypto, stock indices, and commodities like oil and gold, all from a single account with a dedicated account manager for fully personalized service.
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