The Fed & Its Use of Economic Coercion:
This is Not Coin-Flip Policymaking
With the recent statement by U.S. Federal Reserve Chair Powell that “overall economic activity appears to have picked up,” after an aggressive 75-bps interest rate hike in June despite slowing economic growth, investors may understandably be confused. However, there may be method to this perceived Fed madness. While its communication strategy has helped tighten credit markets to this point, its recent actions may be a form of economic coercion: convincing the financial markets that inflation can and will be beaten. This will help to accelerate the process needed for inflation to temper, a situation that the Fed has consistently acknowledged will take time. Investors need to take note: We are already beginning to see the forces of disinflation emerge, which is likely to pave the way for a Fed pivot come the fall.
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Wellington-Altus Market Insights by James Thorne – The Fed and Its Use of Economic Coercion
