Renowned economist and Ford School Professor Justin Wolfers has weighed in on the current market turbulence, attributing significant volatility to fears of insider knowledge and recent Federal Reserve decisions.
What Happened: Wolfers took to social media platform X, to discuss the recent market volatility. He highlighted the impact of insider knowledge on market shifts, quoting a post by statistician Nate Silver that suggested a possible shift in the vice-presidential odds.
Silver’s post included a screenshot showing the probability of Minnesota Governor Tim Walz as the Democratic Vice Presidential nominee at 59%, compared to Pennsylvania Governor Josh Shapiro at 40%.
Silver commented, “IDK if somebody knows something or if somebody thinks they know something. With VP stuff, usually the latter. But big shift here.”
Wolfers underscored the impact of this on markets, saying, “In these markets it’s enough if someone fears that someone else knows something. No-one wants to bet against an informed insider, so even a small bet can lead prices to shift sharply.”
Wolfers in another post pointed out that the recent market meltdown was due to the Federal Reserve’s decision not to cut rates, despite a substantial fall in the 10-year bond yield.
“The market meltdown came because the Fed didn’t cut rates by a quarter point last week. But the 10-year bond yield has since fallen by more than a quarter point, a bigger easing than you typically get from a Fed rate cut,” Wolfers wrote.
Wolfers highlighted an article by Harvard professor Jason Furman in The Wall Street Journal, where Furman criticized Federal Reserve Chairman Jerome Powell for not cutting the federal funds rate at the last Federal Open Market Committee meeting. Furman noted that the subsequent monthly jobs report showed signs of economic weakness.
Why It Matters: The market’s reaction to the potential Democratic VP nominee is significant, especially as Vice President Kamala Harris is in the final stages of selecting her running mate.
Adding to the market’s volatility, former President Donald Trump recently criticized the current U.S. leadership for the global stock market sell-off, attributing it to “inept U.S. Leadership” and singling out Harris and President Joe Biden.
He expressed his views on his social media platform, Truth Social, stating, “Stock markets crashing. I told you so!!! Kamala doesn’t have a clue. Biden is sound asleep.”
Moreover, the Federal Reserve’s potential rate cut in September is another factor influencing market dynamics. Speculative bets on interest rates have intensified, driven by recent U.S. economic data.
The unemployment rate unexpectedly increased from 4.1% to 4.3% in July, reaching its highest level since October 2021, while job additions slowed significantly. These indicators have exacerbated fears of a manufacturing contraction, as reflected in the latest ISM Manufacturing PMI for July.
Federal Reserve Chair Powell had hinted at a potential rate cut, stating, “I would think that a rate cut could be on the table at the September meeting.” This has led to further speculation and market movements.
Wolfers also recently expressed skepticism about Trump’s plan to pay off the U.S.’s $35 trillion debt load using Bitcoin BTC/USD. Wolfers responded to a post by another renowned economist, Scott Linsiome, highlighting Trump’s plan. Wolfers stated, “That’s not how crypto works.”
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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