You said coin flipping was better than watching the fed lol. I disagree. You implied that watching the fed it means taking their word as fact. I disagree. I am saying it is better to look at what the fed is saying relative to the expectations the market has of fed action. You seem to disagree. That’s fine and is your prerogative.
Interest rates to 10% & SnP gaps up 500 points on monday. ,,If you guessed interest rates correctly 3 times in a row, you would be a billionaire by now. You see - there's not that many billionaires" - Peter Lynch
Fed must control the currency flow by raising rates. People will spend less and park funds more that squeeze the inflated bubble to a greater extent.
What is the impact of Fed raising short-term interest rate? Very limited. Large businesses get a lot of cash in the bank. Small businesses do not want to borrow money and expand. Common households do not want to borrow money since they get money in the bank too. The only people still borrow money are the want-to-get-rich-overnight people who want to trade crypto, meme stocks, tech stocks and flipping houses. This is how and why we see crypto and tech stocks tank. House prices may get stable and slow down. But commodity prices are not really impacted. There is some froth from the excess money. But most of that is the US energy policy and supply chain problems. Do not know how long those meme stocks can hold. How long Cathie Wood will stick around. And crypto? It is never a storage of value. Just a speculation vehicle.
Also, this is exactly what Larry Summer has been saying. Fed is behind the curve; Inflation is never a transitory; The longer Fed waits, the bigger bubble those asset prices are going to be; Then more pains we'll endure to shrink the bubbles. This is exactly what happening now. Maybe some traders still want to buy the dips. But they may run out of money quickly. Not sure if this just a couple of months, or probably longer.
Alt-theory I'm considering, though not convinced. USD is ending role as reserve currency through natural evolution. (See Dalio's latest book). Current policy is an accelerated option to bring that about. Fed policy makers give zero shits about the people of the country. They serve the wealthy elites. This is a controlled burn to end current manifestion of USD, with massive devaluation - likely 80% or more. Will take about 3-5 years. Massive pain for savers. Big opportunities for nimble, savvy traders. Huge transfer of wealth guaranteed for the biggest pockets - they initiated the process. Middle class wiped out.
Red Sun has it right. Let's calm down. The inflation rate right now is higher than we would like, but not anything like historically high rates. There are supply issues in the face of suddenly increasing demand due to the Biden administration's making a clever end run both through and around around Congress to get the minimum age up to where it should have been at $15/hr. Fed is behind the curve. Powell was a bad choice when Trump chose him. He was a bad choice when Biden chose him. The Fed can not do a lot about the current inflation caused by sharpely increased demand in the face of decrease supply and bottle necks, but they can stop doing what they were doing, which made matters worse. They can, of course, create a Volcker style recession --let's hope they don't. On the other hand, small incremental rate increases will have little effect, as they usually do -- they create momentary market turmoil but nothing much in the longer run. What's needed is an increase in supply. In the long run, that's a good thing to need. It is going to take some time. It can't happen overnight. If the Sleepy Joe's legislation can get past the Senate mostly intact, we are going to see a wonderful, strong economy going forward with everyone doing well, not just the 1%. We are already at full employment, and we are just waiting now for the U.S, Senate to act and supply bottlenecks to clear. Everything depends on Congress's cooperation here; not the Fed. If Congress falls in line you are going to see the economy take off like a rocket. And it will be a more honest economy. The future looks very, very bright for the United States, assuming we don't lose the cyber war to online terrorist purveyors of disinformation. It's up to Congress now. All the Fed has to do is stay out of the way. Fasten your seat belts; it's going to be a bumpy, but exciting, ride.
Inflation is the highest in the last two decades. High energy and food prices are a major reason and Covid doesn’t seem to be stopping.