The popular mantra, “Don’t Fight the Fed”( Winning on Wall Street Zweig 1970) seems to be back in fashion these days. Loosely interpreted, this slogan means that one should follow portfolio design suit with what the Federal Reserve is doing with its current monetary policy.
In the early 1980’s, Paul Volcker became an economic super villain of sorts as he ran a similar playbook to what Jay Powell may be forced into if inflation persists…Ie/ raising interest rates. The fact of the matter is that the long-term effects of sticky inflation may be more harmful to our economy than the short-term damage caused by increasing interest rates. While this is not a great predicament, it is understandable as we exit a pandemic type recession.
I often hear TV personalities prognosticate as to which direction the Fed will go with interest rates. I equate that argument to a high blood pressure patient predicting the medication dosage that may be needed to lower their BP. You simply do not know if a higher dosage may be needed until you see the effects of the first dose.
Buckle up and get your popcorn out. Halley’s comet may be seen again before we go through an economic cycle of this magnitude.