We have reached the point in this bear market cycle when some investors and traders decide to anticipate moves by the Fed and try to get ahead of whatever’s coming. I get it. Everyone’s frustrated from months and months of losing money and faith. However, the Fed is doing its job, and bringing balance to an out-of-control economy takes time.
Don’t fight the current policy
Don’t like this hawkish monetary policy? Eager to see the end of rate hikes? Too bad. If you want to time a pivot to a more dovish policy, you will get burned.
Sadly, Fed policy has conditioned us to expect generous amounts of liquidity during uncertain times. Indeed, for more than 35 years, the Fed has been the backstop for market-moving events. Flooding the economy with money is the Fed’s one tool for creating an environment that supports an economic recovery. The unexpectedly fast recovery from the COVID-19 pandemic, and the ensuing inflation, clearly shows that printing your way to prosperity can have severe consequences.
It took them a while, but the Federal Open Market Committee finally realized the penalty of too many dollars in the system. They are now trying to reverse the damage wrought by decades of a loose monetary policy. Can they do it without destroying the economy or markets? I think they can, but the last time they tried out a restrictive policy in 2018, the committee got spooked and retreated quickly.
The Fed is doing its job
Things are much different today. Back then, inflation was not raging out of control. The Fed has signaled over and over again that they are committed to bringing down high inflation by raising rates continually. It’s going to work if they remain steadfast, and our economy will benefit from these restrictive policies years down the road. It’s short-term pain for long-term gain.
So, for those who are saying inflation has peaked and it’s time for the Fed to pivot, STOP IT! Pay attention to what is happening around you. There are already numerous signs that the economy is cooling off, which it desperately needed to do. The Fed – for all of its faults – will tell us when they are going to move away from this hawkish policy. But trying to call it early – that’s a fool’s errand. Let others make the mistake of guessing wrong. Hold onto your money, be patient, and continue playing by the bear market playbook.