Last Friday the stock market tanked following another monetary policy maker’s statements about interest rates. It seems investors are, yet again, willing to believe the Fed intends to raise interest rates despite the reality of a bad economy. Policy makers continue to keep the idea of rate hikes alive despite the knowledge they are powerless to do anything.

In a speech Friday morning, Boston Fed President Eric Rosengren suggested the time for a rate hike was getting closer and delaying could dampen economic gains: “A reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” he stated. “Failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

The Power of Suggestion

In response to Rosengren’s statement, the market sold off with utility and energy stocks receiving the worst hit. The Dow Jones fell 2.13% and the Nasdaq plunged 2.54%. Gold Stocks closed down almost 6% while bullion dropped around $10 and silver around $0.50.

According to the Washington Post, Rosengren’s statements seemed to catch investors off guard, probably given that Fed president is known to favor lower interest rates to spur economic recovery.

Rosengren’s new policy shift works on the assumption the economy has improved. But the facts say otherwise. The jobs report released early this month showed only 151,000 new jobs created and an unchanging unemployment rate of 4.9%. Some economists suggested the data “confirms that the economy is performing well.” Statements like this suggest we now work within a policy environment where no growth is a positive.

Bad Data Denial

However, the jobs numbers only worked to overshadow other bad data. Last week the ISM Manufacturing index number was released. The index monitors employment, production, inventories, new orders and supplier deliveries for more than 300 manufacturers and is usually a strong indicator of corporate profits. The index was at 49.4 with anything below 50 indicating a contraction and/or recession.