🍕The Fed tackling inflation🍟

💊Our Dear Uncle Powell🧸

It wasn’t that long since Uncle Powell was nominated as the Fed chairman for a second team. His talk about retiring the word “transitory” on the nature of inflation spoke fear across markets on Tuesday.

Wall Street was caught off-guard, sending major indices to fall sharply. Moreover, it was a pivotal point that market participants did not see it coming. After all, the taper plan was just announced a month ago and that the Fed had just implemented it about 2 weeks ago.

The abrupt gear change reflects the uneasiness and weakening patience among FOMC members on the enduring inflation that seems more persistent than thought.

At Pika World, we believe consistent with most articles and readings, two things have perhaps changed.

🪂#1: Unleash the Animal Spirit🏋🏽

There is a strong inclination for Uncle Powell to declare openly on his thoughts and tools available to tackle inflation. After all, his nomination is confirmed, and he does not need to be tied down by Progressive Democrats in Washington that had been eyeing for Fed Governor Brainard to take up the post.

It should be a piece of good news that Uncle Powell can stretch his muscle and tame inflation before it leaves a more permanent scar than desired.

⛳️#2: Beware, I am still here🛎

The Omicron variant is a shout to global leaders that the pandemic isn’t over after months of peace in dealing with Covid-19. In his testimony to the Senate Banking Committee, Uncle Powell had changed how he viewed the risks that were building up.

Till today, governments have been more concerned about economic growth than inflation. After all, Covid worried consumers had dampened normal activities that would have otherwise contributed to more vibrant spending. Workers are also hesitant to return to work when infection fear is real. Therefore, the Fed has been more concerned about full employment than inflation fear.

📉A Change of Perception🪜

Based on his latest testimony, it appears that the dual prong mandate focus is now tilted more towards inflation. There was discussion on supply chains woes, shortage and its effect on prices. Given that the unemployment rate is now at a low rate, it is perhaps logical for him to switch focus on prices level in the economy.

On a general note, the Fed appears to be more hawkish than anticipated, and the market felt uncomfortable by the undercurrent of the shift in thought. Since markets are forward-looking, there is huge pricing on the higher possibility of the first-rate hike in 2022. The fight between the Omicron variant and inflation affecting the arrival of the first hike is to be seen.

Till then, Pika World will bring you the latest insights.

We hope you enjoy this read. Bon Appetit.

Cheers,

Pika Nat.