Federal Reserve Chairman Jerome Powell is shifting monetary tightening into a higher gear. His goal sounds straightforward—lift interest rates to “neutral,” a setting that neither spurs nor slows growth.
But there’s a catch: Even in normal times, no one knows where this theoretical level is. And these aren’t normal times. There are good reasons to think the ground beneath the central bank’s feet is shifting and that, after accounting for elevated inflation, neutral may be higher than officials’ recent estimates.
At their meeting next month, officials are set to approve plans to shrink their $9 trillion asset portfolio and to raise their benchmark rate by a half percentage point. They are poised to follow with another half-point in June.
“We’re going to be raising rates and getting expeditiously to levels that are more neutral, and then that are actually tightening policy if that turns out to be appropriate, once we get there,” Mr. Powell said during a panel discussion last week.
My point in posting this is specifically their "Price Pressures" chart depicting inflation. It's a pretty significant spike.
You can see in that chart that from 1970-1982, when the Fed last had to fight significant inflation, there were more recessions in those twelve years than in the forty that followed, 1982-2022.
A lot of people have noted that every cycle seems to involve the Fed allowing for easier and easier money, and this article puts it all together...the Fed could do this, indeed you can argue the Fed did the right thing doing this, because inflation was contained. That is no longer the case. This new state of affairs likely presages an aggressive rate hiking campaign that will not be like anything we've seen during the extended bull market of 1982-present day.
TLDR: 1) Easy money is over, 2) Don't fight the Fed.
This is what Warren Buffett refers to as the tide going out, and it looks to be going out in a big way. Likely growth stocks with marginal to negative earnings will continue to get hit the hardest.
Submitted April 25, 2022 at 12:01AM by CQME https://ift.tt/oIyb8aN
