By WSJ City 

It isn't quite true to say that monetary policy is all in the mind, but it isn't entirely false either. The Federal Reserve is subject to the whims of the markets, and that is rarely as obvious as in the past six months, James Mackintosh writes in his Streetwise column.

KEY POINTS

   -- The Chicago Fed's National Financial Conditions Index and the Goldman 
      Sachs FCI tightened quickly when shares plunged late last year. 
 
   -- Goldman's measure suggested that for a couple of days before Christmas 
      conditions were slightly tighter than in December 2015. 
 
   -- They quickly eased off, however. 
 
   -- Three years of Fed rate rises had resulted in overall financial 
      conditions that were unchanged......and are now once again looser. 

Analysis

This year's stock rally has helped to loosen financial conditions again, as markets recognised the Fed's change of tone, and stopped worrying so much about recession. If overall financial conditions are really what matters, perhaps the Fed should target the S&P 500. Cynics will say that it already does, it just can't tell anyone.

A fuller story is available on WSJ.com

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(END) Dow Jones Newswires

April 05, 2019 04:24 ET (08:24 GMT)