In today’s briefing:
- Will the Ghosts of 1994 Return to Haunt the Fed and US Financial Markets?
- Imagining War and Peace
- A Market Pause, or A Stall?
Will the Ghosts of 1994 Return to Haunt the Fed and US Financial Markets?
- St. Louis Fed President Bullard believes that US monetary policy requires much more aggressive tightening in 2022, particularly given that pipeline inflation pressures remain worryingly elevated.
- Gradualism has been favoured by the Fed since 1994 when unexpectedly aggressive policy tightening wreaked havoc on US financial markets after a prolonged period of low interest rates.
- The Fed is having to play catch-up, analogous to 1994, while US equities are more vulnerable to a 1994-style policy repeat due to growth stock leadership in benchmarks indices.
Imagining War and Peace
- The Russia-Ukraine war has dealt an unexpected shock to the global economy and markets. Rising inflation expectations are forcing central bankers to react with more hawkish monetary policies.
- Imagine peace. How would the global economy and markets react?
- A best-case scenario of a sudden peace agreement would leave the global economy exposed to additional supply chain aftershocks from the Russia-Ukraine war.
A Market Pause, or A Stall?
- The stock market is extended in the short run and the rally may be starting to show signs of exhaustion.
- Momentum is still strong and it would be too soon for traders to take bearish positions.
- We are seeing the set-up for a sell signal, which should appear soon.
Before it’s here, it’s on Smartkarma
