The Fed, charged with reducing inflation to a target of around 2% from 8.3%, is now raising interest rates to try to cool the economy.
“These are uncharted territory for all of us,” said Liz Young, director of investment strategy at SoFi. “Inflation hasn’t been this high since the year I was born.” The economy will recover, she said, but it will is “slow burn”. The market will continue to tumble and prices will remain high for some time, she added: “I think we may have to stay there for a while. I don’t know if we’ll bounce back from it any time soon.”
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said part of the lack of confidence was due to the proliferation of widespread and rapid social media and communication channels — which had nothing to do with central banks. The constant real-time feed of news and analysts makes it easier to judge the Fed’s actions rather than its results.
“You know them better now,” Silverblatt said. “You see all the nooks and crannies.”
Timing is everything: Inflation doesn’t always go down. Look at the 1970s, the US economy went through three recessions, and the underlying inflation problem never went away.
“Stagflation is probably the worst word for financial markets because it’s the best of both worlds. Inflation is high and the economy is slowing,” said Leo Grohowski, chief investment officer at Bank of New York Mellon Wealth Management. “I think we’re smelling stagflation right now.”
But the specter of the 1970s haunts the minds of all Fed governors, who say they will intensify their hawkishness — whatever that means for markets and the economy.
Grohowski said he thinks inflation will persist for the rest of this year and part of next year, but it has not yet become entrenched in the economy and will decline in 2023.
Still, investor and consumer sentiment is not the same. Economists and analysts believe that “people are expecting some relief, and we are now most likely to pass the inflation peak,” Grohowski said. But consumers “are concerned that inflation will last longer today. time.
They may not be wrong. While prices for some commodities will fall quickly, energy and home prices are likely to remain high for some time, the Fed said.
We don’t think inflation is entrenched,” Grohowski said. “But we acknowledge there are concerns because some inflation is stickier than most economists and even the Fed expect.
Davos is back, the world has changed
The World Economic Forum – known for combining classy panels with flamboyant parties – is back in Davos, Switzerland for the first time in two years. The conference aims to bring together key figures to address pressing issues such as inequality, climate change, the future of technology and geopolitical conflict. But the logic behind inviting some of the richest people on the planet to solve these problems from resort towns looks more shaky these days.
The event comes against the backdrop of the worst cost-of-living crisis in decades in developed and many developing economies. Soaring food and fuel prices have created hunger and hardship, fueled instability, sparked protests and encouraged political insurgents.
The main event is likely to be Monday’s speech by Ukrainian President Volodymyr Zelensky, who is expected to attend via video conference. German Chancellor Olaf Schultz and European Commission President Ursula von der Leyen are also scheduled to make speeches later this week, which will be subject to remarks as EU countries struggle to agree on a formal oil embargo against Russia review.
on Monday: Kansas City Fed President Esther George speaks; Zoom Video Communications earnings,
Tuesday: April new home sales; gains from Intuit, AutoZone, Best Buy, Toll Brothers, Petco and Nordstrom
Wednesday: April core durable goods orders, FOMC minutes, weekly crude inventories; gains from NVIDIA Corporation, Williams-Sonoma and Dick’s Sporting Goods
Thursday: Q1 GDP (2nd Estimate), Initial Jobless Claims, April Pending Home Sales; Alibaba, Costco, Dollar General and Dollar Tree Earnings
Friday: James Bullard, president of the Federal Reserve Bank of St. Louis and voting member of the FOMC, speaks