INFLATION • THE FED • JEROME POWELL
The late summer stock market rally was fueled by the market’s misconception of the severity of inflation and the seriousness of the Fed’s determination to defeat it. Chairman Jerome Powell offered correctives to these misconceptions in his speech at Jackson Hole last week.
The market must reset its expectations and come to terms with the one-two punch of both inflation and interest rates that are going to be higher for longer.
The Fed’s commitment to taming inflation is going to slow the economy. This is their clearly stated goal.
With the reset of expectations comes the return of erratic price swings as the stock market becomes more volatile in anticipation of the Fed’s goal coming to fruition.
Going forward stocks are going to have a hard time gaining traction in a stagflationary, rising interest rate environment.
This misjudgment was based on two things:
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