Watchtower Rut

What’s happening in resent weeks has been confusing the market. Fueled by the Fed’s pivot in policy, the markets climbed the wall of worry and set new highs; Then the Fed’s minute dampened the market enthusiasm, resulting in seven straight sessions sell-off. After several days digestion, the rally is back on its track. So where are the markets headed for after new highs? Will the Fed fall into a rut in terms of monetary policy? What are the consequences of that?

The Fed has ever lost its credibility due to its delay in rate hikes to fight the inflation. The Fed didn't do their homework and mischaracterized the spike in inflation that has plagued the U.S. economy over the last two years, and Chair Jerome Powell repeatedly insisted that inflation was "transitory," indicating that it could be easily tamed.

The rapid surge of inflation and a slow-footed response from policymakers when prices began surging early in 2021 made the more aggressive pace necessary.

Considerable progress has been made, and multiple data points suggesting that inflationary pressures have eased considerably. Despite the Fed's rapid raising of interest rates, the U.S. economy has held up surprisingly well, though economists are still divided over whether the tightening of financial conditions will bring about a recession.