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Does Market Accept Fed’s Transitory Narrative?

Well, we said that Jerome Powell has a good week and got a reprieve because of the ‘goldilocks’ numbers last week. We think maybe that this week he is even more pleased. Why? Because it appears the market is in quite a trusting mood with the Fed. Appearances can be deceiving. However, it is no doubt that the Fed’s immediate playbook was made easier by the fact that markets actually went up after a significantly hotter than expected CPI number. Rather than sell off, stocks closed at two successive ATHs back-to-back and rates remain subdued. It’s almost too quiet?

We did hear some rumblings that a some of the price action could have been due to a short squeeze in the bond market, but we’re not certain to what degree. There are compelling arguments on both sides of the ‘great inflation debate,’ but ultimately time will tell. We are living in an era where forecasts based on historical data are limited in significance and effectiveness given the absolutely novel character of our current economic situation. We don’t know what a post-pandemic economy will look like in a 21st century economy and how possibly could we?

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