Hope you are all doing well. Markets snapped a three-week losing streak, the Fed rate hikes, and inflation continue to drive the volatility. All 3 major averages were up nicely on the week with the Nasdaq leading the way gaining 4.1%. Rest in peace Queen Elizabeth II who passed away on Thursday, many songs have been written about her. So I have chosen to break down this week’s news using lyrics from one of those songs the Sex Pistols classic, God Save the Queen.
🎶We’re the flowers in the dustbin, We’re the poison in your human machine
The Federal Reserve has realized ten plus years of low interest and accommodative policy has outlived its economic purpose like flowers after their decorative purpose is done. The Fed has reestablished itself as the world’s chief inflation fighter. They have prioritized bringing down inflation over an effort to support economic demand. In the short term it has been poisonous to the bull market, but it’s the correct approach for longer-term stability. There is more to come on the rate-hike front. Fed Chair Powell spoke Thursday and expects to continue with the rate increases saying the Fed will “keep at it until the job is done. Powell said it’s incumbent on the Fed to keep acting until inflation falls and avoid the consequences of the 1970s when a failure to implement an aggressive policy response allowed public expectations for high inflation to fester. Indeed their policy response has been aggressive. They have already increased rates by as much as they did in the last rate hike cycle between 2015-2018 and they’ve done so in a fraction of the time. They only started raising rates 6 months ago.
🎶Don’t be told what you want, Don’t be told what you need
Don’t pay attention to all the doom and gloom on the financial news networks and online. When public sentiment is negative they will focus more on negative headlines then positive. Buried in the news this week was more positive data on inflation. On Wednesday we got the release of the Fed’s Beige Book which summarizes economic reports from its branch banks. The report indicated that price increases were moderating in nine of its 12 districts, as “lower fuel prices and cooling overall demand alleviated cost pressures, especially freight shipping rates.” We are seeing continued declines in prices for steel, lumber, and copper and we got a pleasant surprise on Friday as Chinese producer price inflation moderated.
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