It’s All About the Fed

The Federal Reserve is now the main determinant in both the stock and bond market. Sure, there are other influences. Inflation, the war in Ukraine, and the pandemic are important but not primary factors. Investors know that the Fed can bring our economy to a quick slowdown if not decline. The Bull has stated that a recession is possible. Next year is the most likely time frame, but it is not a given.

Too accommodative for too long is why the Fed is now accelerating the normalization of interest rates to combat rampant inflation. Last year they attempted to ensure a strong economic recovery. They wanted strong job growth but missed the inflationary pressures their policies promoted. Now, they would like to restrain inflation without killing the strong economy they worked to engender. This will be difficult, but not impossible.

Investors are skittish. The history of tightening cycles is that most have led to recessions before inflation succumbed. Every economic metric is scoured now for clues as to the eventual outcome. That is why the market reacts dramatically to one sign or another. Expect more of this volatility. Currently the economy is strong with exceptional profits, but for how long? The Bull and his partners are also intently watching and adjusting as needed, stay steady my friends.

The Lonely Bull