Two Fed Officials Remain Unfazed by October Global Stock Rout

(Bloomberg) -- Two Federal Reserve officials who vote on interest rates this year downplayed the effects on the economy of the rough October for U.S. stocks, saying the market turbulence would have to be sustained to alter their outlook for growth.

“While a deeper and more persistent drop in equity markets could dash confidence and lead to a significant pullback in risk-taking and spending, we are far from this scenario,” Cleveland Fed President Loretta Mester said in the text of a speech late Thursday in New York. She's a voting member this year on the policy-setting Federal Open Market Committee.

“While the market volatility poses a risk to the forecast and bears monitoring, it has not led me to change my modal medium-run outlook,” Mester said.

The S&P 500 Index has dropped more than 7 percent in October but remains more than 5 percent higher than a year ago. The recent swoon hasn't done much to reduce expectations that the Fed will raise interest rates for a fourth time this year, as investors see a 74 percent chance of a December hike, according to trading in federal funds futures.

Nonetheless, global stocks may be headed for their worst month in more than six years, buffeted by concerns ranging from heightened trade tensions between the U.S. and China to the Fed's plans for gradual rate hikes to prevent the economy from overheating. A surge in tech shares pushed up U.S. benchmark indexes on Thursday.

Fed Vice Chairman Richard Clarida, giving his first public comments on the economy since joining the central bank last month, also downplayed the potential impact of recent stock market turbulence on Fed policy, noting that the fundamentals of the economy are “very, very solid.”

While acknowledging that financial market movements can influence the economy, Clarida said in a speech in Washington that they needed to be sustained and were just one of a wide range of factors to take into account in assessing the outlook. As a Fed governor, Clarida has a permanent vote on the FOMC.

To contact the reporter on this story: Christopher Condon in Washington at ccondon4@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Chris Bourke

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