FNArena’s Weekly Insights – August 31 2022
In this week’s Weekly Insights:
-Don’t Fight The Fed, Part Deux
-What Happened To That Recession?
By Rudi Filapek-Vandyck, Editor
Don’t Fight The Fed, Part Deux
In late May this year, it seems such a long time ago, I wrote about the discrepancy between equity markets and the New Reality behind higher inflation in 2022.
Equities had been largely ignoring the newly developed determination among the world’s central bankers to prevent a repeat of the 1970s when persistent run-away inflation dogged economies around the world into what came to be known as stagflation; low growth, high unemployment and both households and businesses struggling to make ends meet.
For investors, it is important to understand that fighting inflation also includes cheaper share prices. It is part of the mix that central bankers have at their disposal to tighten financial conditions, in order to pull the rug from underneath elevated consumer price inflation.
Back in May, however, it was obvious not every participant in financial markets understood that ‘Don’t fight the Fed’ is now carrying a different context from the years prior.
Which is why Jay Powell decided to make the message clear for all with no room for misunderstanding. He used an interview with the Wall Street Journal to convey the missive that fighting inflation is now the Fed’s main goal – everything else is of secondary importance, at best.
