That historical signal may not be as strong anymore due to the Fed’s perceived willingness to backstop the stock market during times of trouble, according to Antonelli.
“The Fed has shown a willingness to assure big investors that the stock market hasn’t become shark-filled waters -- that there’s still a lifeguard on duty,” he said. “And the market has absorbed that theory due to all the extraordinary action we’ve seen over the last seven or eight years.”
To Yung, just because the equity market in its current form is an imperfect indicator for the economy doesn’t mean the Fed should stop monitoring it. Rather, it should be viewed as a piece of the larger puzzle, she said.
“Monetary policy is being driven by data, and the integration of financial markets is stronger than ever,” said Yung. “It’s still important to the Fed to look at financial developments around the world, and the stock market is one of those measures.”