The Fed: ENOUGH
Financial market participants cheering on a strong economy and higher stock prices are setting the US economy up for a harder landing than otherwise necessary. Today, the Fed said ENOUGH.
Finally. The Fed finally vocalized the single biggest issue in the War on Inflation: ASSET PRICES.
In a “hyperfinancialized” US economy (as Julian Brigden likes to say), stock prices drive CEO decision making and high-end consumer spending. With SPX barely off its ATH, large cap CEOs have little to no reason to conduct layoffs and high-end consumers have little to no reason to stop spending. In an above-2% inflation economy where the Fed is trying to bring inflation back to 2% “as gently as possible”, elevated stock prices are a huge impediment. And all the soft landing economic and stock market bulls out there keeping and driving the market higher are absolutely contributing to what will ultimately be a much harder landing for the US economy than is otherwise necessary. It’s as simple as that.
Now, the Fed is absolutely to blame for feeding the flames of soft landing mania with incessant talk about the possibility. But even still, all along the Fed’s own definition of a soft landing has been nowhere close to the “no landing” definition peddled by Team Long Transitory (Paul Krugman’s new term). The Fed’s definition is a recession “not as bad as the worst historical experiences under similar circumstances”.
The ultimate blame for the harder-than-otherwise-necessary hard landing will fall on the likes of Jim Cramer and other economic and stock market bulls cheerleading the incessant purchase of equities at elevated valuations.
Today, the Fed finally said ENOUGH.