Stocks closed deep in the red for a second consecutive day on Monday amid concerns about the state of the US economy following an unexpectedly weak jobs report released on Friday. Investors are now looking to the Federal Reserve for potential intervention in the form of an emergency rate cut.
However, it is unlikely that the Federal Reserve will take immediate action to address the stock market's volatility. Chicago Fed President emphasized that the Fed's primary mandate does not include ensuring the comfort of the stock market.
In hindsight, there is a compelling argument for why the central bank should have considered lowering its benchmark lending rate at its recent meeting, which took place before the release of the disappointing jobs report. The sudden increase in the unemployment rate from 4.1% in June to 4.3% in July, significantly higher than the beginning of the year, suggests a potential weakening of the US economy that may have warranted a rate cut.
Despite the hindsight perspective, convening an unscheduled meeting to lower rates before the next scheduled meeting, which is over six weeks away, could have adverse effects by exacerbating market panic rather than calming it.
