Fed poses bigger market risk than Russian invasion of Ukraine: Expert
Barry Knapp says the 'real story' for the stock market is Federal Reserve policy decisions
During an interview on "Mornings with Maria" Ironsides Macroeconomics director of research, Barry Knapp, said the Fed poses a bigger risk to markets than a potential Russian invasion of Ukraine.
STOCK DRIFT AMID RUSSIA, UKRAINE TENSIONS, INFLATION WOES
BARRY KNAPP: You had a pretty good move in S&P 500 implied volatility, the VIX index had a pretty significant move through Thursday and Friday. The vast majority of which is attributable to the Fed. But clearly going into a weekend, you caught a pretty good bid. The term structure, meaning six month versus one month, got inverted a little bit. And so, yeah, there's a bit of a risk premium in the markets for a potential of a Russian invasion. So any easing of that will take a little pressure off. But you can see, even with that announcement, crude hasn't come down all that much this morning. And that's because the underlying fundamentals there are really strong. You know, even as demand still hasn't come all the way back, you know, supply remains very, very tight. And so the energy story is not going to really get alleviated all that much by some easing of tensions.
The real story for the equity market is the Fed and whether they're going to be incredibly aggressive about removing policy. There's going to be a debate underway as to whether they should go 50 or whether they should get more active with their balance sheet management, meaning start the balance sheet run-off as soon as the March meeting. That, I think, would be a much more surgical approach that would cause much less uncertainty in the markets and be more effective and actually cooling housing inflation. So they haven't given that a lot of, we haven't heard from the leadership essentially. So we haven't heard from Powell. We haven't heard from Brainard, even John Williams, the president of the New York Fed, who is scheduled to speak Friday. But that to me is the bigger, broader issue for the stock market. Here is, you know, it has the Fed panicked as a consequence of these off-the-charts inflation numbers.
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