Ecoinometrics - The bear market so far
After an uneventful week it is time to zoom out and see how this bear market stacks against the past and what's awaiting in the future.
Except for the Federal Reserve reaffirming their commitment to fight inflation last week was pretty quiet. So now isn’t a bad time to stop for a minute and look at the big picture for this bear market so far.
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The bear market so far
Time flies. A year ago, Jerome Powell was testifying in front of the congress. His take on the economy? The US economy is strong. Inflation is transitory. We got this under control. Treasury Secretary Janet Yellen was in full agreement with that. And President Joe Biden was mocking critics that pointed out the risk of inflation getting out of control.
Fast forward to last week. Jerome Powell is back in front of the congress. Inflation isn’t transitory anymore. But it is because of Vladimir Putin and the Chinese. This pesky global supply chain and those stubbornly high oil prices are the root of the problem.
Of course the Federal Reserve can’t do anything about that. But you know what? They’ll do something anyway.
In their own words, the Fed’s unconditional goal is to get inflation back down to its 2% target. Unconditional here means whatever happens with the stock market, whatever happens with the jobs market, whatever happens with the GDP, QT will continue until inflation is under control.
I must say that I admire Jerome Powell’s ability to say in the same speech that:
They can’t control the root cause of inflation.
They will crank up QT anyway until inflation comes down.
They expect all that to result in a softish landing for the economy.
Mind blown.
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