Market Musings


Jerome Powell, the Fed and their IMPOSSIBLE position

The Fed remains in an extremely challenging position. While Jerome Powell raised the Fed Fund rates by 0.75% today, to 1.5-1.75%, it's still woefully below the underlying inflation of nearly 9%. 

So what is the Fed going to do?  

First, the Fed NEEDS to get inflation under control because "it's very painful for people."

This makes sense: As inflation has outpaced wage growth, real purchasing power has declined!

As consumers can afford less goods and services, sentiment drops and societal unrest increases. This also increases the odds that employees will increasingly need to ask for higher wages, creating an inflationary spiral effect. 

The second reason the Fed is in a very tough spot is because much of the current inflationary outlook is attributable to supply constraints (oil, food) that the Fed has very limited control over. 

This is the set up for STAGFLATION. 

The Fed raises rates to temper demand, which hurts the economy, but...

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