September 2023 Market Insights by Dr. James Thorne – The Fed’s High-Wire Act: Dancing with Inflation, Deflation, and the Whims of the Market
Is the Fed caught in a dance between inflation and deflation? Dr. James Thorne warns investors that current economic growth may be a fleeting sugar rush, not a sustainable trajectory, and how to brace for potential risks ahead. Learn more in his September Market Insights.
Here is a preview of what Dr. Thorne had to say:
The adage, “Discretion is the better part of valour,” has never been more pertinent as the U.S. Federal Reserve cautiously navigates between the perils of inflation and deflation. In the world of economic policy, the Federal Reserve finds itself delicately engaged in a balancing act akin to a tightrope walker traversing a starlit sky obscured by clouds. The elusive concept of the “neutral interest rate” remains shrouded in uncertainty, and one could plausibly argue that rate hikes possess an inflationary nature. With continued reliance on outdated economic theories and models, the present quandary should come as no surprise.
The global economy has weathered two external shocks, resulting in an unprecedented inflationary upheaval. In response, central bankers tightened financial conditions by raising short-term interest rates to levels exceeding 5%. However, before the full ramifications of these rate hikes could materialize, inflation experienced a significant decline. By some metrics, inflation now resides close to the Federal Reserve’s targeted 2% threshold.
