Investing.com -- The markets have displayed an excessive reaction to recent comments from the Federal Reserve, according to former vice chair Alan Blinder.
He describes the response as the S&P 500's most severe on a Fed-decision day in over a decade.
Blinder, who also serves as a Princeton University Professor of Economics, expressed his views during a Bloomberg TV interview.
He suggested that in calm markets, reactions are typically three times what they should be, while in panicky markets, reactions can be ten times as much. He identified the current response as falling into the latter category.
The Federal Reserve's messaging, which markets should have interpreted as slightly hawkish, was not a significant shift in the central bank's position on inflation, according to Blinder.
The messaging was a reflection of the U.S. economy's stronger growth than anticipated six and nine months ago. Additionally, the downward trend of the inflation rate appears to have halted in recent months.
Blinder also touched on the potential impact of President-elect Donald Trump's promised policies. He labeled these as clearly inflationary, specifically pointing to proposed tariffs and labor supply restrictions, which may present concerns for the Federal Reserve.
Blinder further speculated on the possibility of the Federal Reserve making cuts of less than the projected 50 basis points, citing the unpredictability of Trump's actions on tariffs.
He also addressed the uncertainty surrounding the federal funding deal, suggesting it might only slightly complicate the Fed's balance sheet runoff. He noted that Congress could potentially delay the issue for a few months.
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