Please Listen to The Fed!

The US economy is still running hot. The third quarter brought more of the same volatility seen throughout the year. The markets are adapting to The Fed’s medicine: higher interest rates to slow the economy.  On September 21st, The Federal Reserve bank increased the federal funds rate by another 75bps.  This was widely anticipated. However, in his comments, Fed Chairman Powell emphasized that their number one focus is fighting inflation. Until this point, markets had been reluctant to take him at his word with many expecting that he might soon pause or reverse.  Now, the message is clear, the Fed will do “whatever it takes” to beat inflation. 

The Silent Factor

“The ability to distinguish between volatility and loss is the first casualty of a bear market.”      – Nick Murray, Author of Simple Wealth, Inevitable Wealth

US Stocks officially entered a bear market on June 13th when the S&P 500 closed 22% below its January 3rd high. We’ve been here before.  Only two years ago, Covid-19 caused a panic in equity markets which led to a more than 30% market decline. Those losses were (relatively) quickly reversed as investors realized that both Congress and the Federal Reserve were quickly acting in their favor. Easy monetary policy supported what we can now clearly see, in hindsight, was a speculative market bubble that continued for another two years.