In today’s briefing:
- Is the Fed Deliberately Engineering A Recession?
- US Equities and the Real Economy: Large Disconnect Vulnerable to Prolonged Hawkish Fed Policy Stance
Is the Fed Deliberately Engineering A Recession?
- We rhetorically ask whether the Fed is deliberately trying to engineer a recession. The answer is a qualified no.
- The Fed is primarily focused on coincidental and lagging indicators of inflation, which have been sticky, while forward-looking indicators are cooling.
- This is leading to an increased risk of recession which many models indicate is on the horizon.
US Equities and the Real Economy: Large Disconnect Vulnerable to Prolonged Hawkish Fed Policy Stance
- Historically, US equities have frequently displayed a tendency to become disconnected from the real economy, but the order of magnitude since the global financial crisis is unprecedented.
- Higher equity valuations will be under threat if the Fed is forced to further alter forward guidance in a hawkish manner due to sticky inflation.
- Fed Chair Powell received no political pushback at his semi-annual Congressional testimony on monetary policy to raising interest rates further if necessary.
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