On Thursday, May 19, US Eastern time, George Esther George, FOMC voting committee and chairman of the Kansas City Federal Reserve, said that "the turbulent performance of US stocks over the past week" was to be expected, which partly reflected the impact of monetary tightening, she said.Market turmoil will not change the Fed's austerity program。

After stabilizing and rebounding in the past few days, US stocks fell again overnight, with the Dow plummeting a thousand points, the S & P down more than 4%, the biggest one-day decline since June 2020, and the Nasdaq 100 down 5%, the biggest one-day decline since May 6. Earlier in the article on Wall Street, it was pointed out that the recession narrative has not yet been reflected in US stocks and US bonds, and that the current sharp decline in US stocks is mainly due to the influence of the Fed's hawkish policies and concerns about profits and growth.

George believes that the recent decline in stock prices is expected, suggesting that the Fed's "put options" may no longer exist:

Looking at the stock market is an important price signal, just like many other signals need to be observed. This is a period of uncertainty. It's been a tough week in the stock market.

What we are looking for is to convey our policies through market understanding, and tightening should be expected, which is one of the ways to tighten financial conditions.

In the face of the sell-off in US stocks triggered by the Fed's tightening of monetary policy, George, a former Fed hawk, has recently been more centrist, saying his support for raising interest rates by 50 basis points has not changed:

I think what we are looking for is to pass on our policies through market expectations, and tightening is expected. This is one of the ways to tighten the financial environment.

Now that the inflation rate is too high, we need to make a series of interest rate adjustments to reduce inflation. We do see that the financial environment is beginning to tighten, so I think this is something we must observe carefully. It is difficult to know exactly how much tightening is needed.

Raising interest rates by 50 basis points is appropriate, and the plan to shrink the Fed's $8.9 trillion balance sheet will help tighten policy. It will be my real focus to be careful to make sure that we stay in the right direction, incorporate some of these interest rate increases into the economy, and then watch how they develop.

Charlie McElligott of Nomura Securities commented on the remarks that while Fed officials did not pay too much attention to market behavior and consumer prospects, her comments confirmed that they were "watching" the impact of FCI, the financial conditions index, rather than focusing on the need to reduce inflation "now".

Over the past decade, the benchmark s & p 500 index, which is widely used to measure the performance of u.s. stocks, has a compound annual return of 16.6%, which is not far from investors' top forecast for future annual returns of 17.5%. Growth in corporate earnings has underpinned the boom in US stocks over the past decade.

However, as pointed out in an earlier article on Wall Street, some analysts say that US stocks have entered the fourth "super bubble" in nearly 100 years, and that the current pullback of US stocks has only just begun. Faced with the highest level of inflation in more than four decades and the Fed's aggressive policy of raising interest rates, investors are increasingly worried about a recession in the US economy.

Judging from recent statements by Fed officials, the reality that investors have to face isThe well-known "Fed put option" may really be over and will be replaced by the Fed "call option" in the short term.，Market participants said that an orderly tightening of financial conditions was exactly the "ideal state" that the Fed wanted.

Scott Minerd, global chief investment officer at Guggenheim Partners Guggenheim, warned that the Fed's tightening of monetary policy was "going too far" and that US stocks could suffer a "painful summer" in 2022. The Nasdaq could fall 75 per cent from its peak (it is only about 28 per cent back from its all-time high recorded on November 19, 2021), and S & P could fall 45 per cent from its top (it is only 18 per cent below its all-time high set on January 3, 2022).

Minerd thinks that could be very similar to what happened when the dotcom bubble burst in 1999 and early 2000.