For the last decade, bad economic news sent the stock market higher. Why? It meant more stimulus for the financial economy. As long as the economy was not strong & the stimulus was directed to wall street, life was great. Now the situation is reversed. The strong economy combined with high inflation has the wall street CEOs talking about hurricanes approaching… but they are talking about THEIR economy – the financial economy. Don’t confuse the two.
Fed policy has certainly not been speeding hurriedly to pull us from the wreckage wrought by runaway inflation. Good grief, they’re afraid to even approach a conventional speed limit, content to yield to pedestrians waiting at crosswalks and keen to slow down at intersections in anticipation of traffic lights turning amber.
Esther George could not have been much clearer. Inflation is too high and must come down. Financial conditions must tighten, and securities markets are a key monetary policy transmission mechanism. And the Fed today has little clarity on how far this tightening process will need to go.