This is a very short and concise read on how market maybe is misunderstanding and therefore, mispricing the fed reaction function going forward.
The market appears to misunderstand the Fed’s reaction function and is pricing a path of policy that is not consistent with a return to 2% inflation. Inflation moderates through demand destruction when households can no longer afford the price increases. But the sources of household purchasing power – credit, wages, and wealth – all appear to easily support elevated inflation. These metrics may not indicate that a 9% inflation rate is sustainable, but they are much too high for a 2% target inflation rate. The market’s eagerness to price in a dovish Fed pivot early next year is worsening the situation by effectively easing financial conditions before inflation has even peaked.
Give this article a read The author has expanded in detail on 3 major sources of household purchasing power – credit, wages, and wealth.
Wall Street wants easy money tap to be reopened . Fed reserve governer Weimar Powell clearly mentioned in q&a another 0.75% increase is in the cards during oncoming sep 20-21 meet.
10 yr is throwing tantrums.
Sep meet 0.5 or 0.75 % increase guaranteed even if gdp goes negatt & housing collapsed. Unempt has to bev high + inflation has to back down to target rate of 2% which is not possible when official inflation is 9% now.
nov 1 -2 & dec 13-14th meets each minimum 0.5 or 0.25 % increase is on the cards. This meeting Wordings slightly different than july meet. ( attached).
What our Rbi will do in
August 3-5 meeting/
September 28-30th &
December 5-7th meeting?
They can not pause when usa is increasing rates.
So best case 0.5 % or worse case 0.25% eye wash increase possible with a narrative that commodity inflation had peaked!
Nothing will be achieved in timing the market for investment. If not today then after some months, the market is bound to go upwards and thats the nature of market. All these articles are just for academic purposes.
The author has expanded in detail on 3 major sources of household purchasing power – credit, wages, and wealth.
