The Federal Reserve’s recent actions and the ongoing bull market run clearly indicate that the central bank is back in control. The technical definition of a bull market is currently being met, and while the sustainability of this trend depends on economic data and the speed at which we return to the target inflation rate, the signs are positive.
When we talk about the “terminal point of tightening,” we refer to the point at which the Federal Reserve aims to achieve its desired level of monetary policy restraint. The Federal Reserve has communicated its intention to tighten up to a specific point and then assess the situation based on the available data. The fact that they have paused indicates that the data thus far has been promising, and they don’t believe they need to tighten at the same pace they would have if they were not back in control.
Had the Federal Reserve believed inflation was rampant, they would have continued tightening measures rather than pausing. Moreover, they would have maintained a similar pace of tightening. However, during the last Fed meeting, they announced a pause and a deceleration in the rate of tightening. This indicates that the Federal Reserve is back in control and is slowly working towards achieving the target inflation rate of two to three percent.
Naturally, the timeline to reach the desired inflation rate may vary. Historically, it has taken between 18 months to two years to get back down to the target inflation range. Patience and a steady approach are vital in ensuring a smooth transition.
The Federal Reserve’s pause in its actions suggests they believe they are impacting the market. Many metrics and commodities have begun to show signs of deflation or a decrease in inflationary pressures. However, the concern lies with the current job rate. The Federal Reserve is mandated to maintain stable prices, but this objective may come at the expense of higher unemployment. It has clearly stated that it will prioritize controlling prices before focusing on generating more jobs.
What we are witnessing is deflation occurring in almost everything except the employment sector. If this trend continues, inflation can become persistent and challenging to address within employment metrics. The Federal Reserve needs to carefully balance stable employment with maintaining inflation at a reasonable level.
In conclusion, the current bull market run and the Federal Reserve’s actions suggest they are back in control. The pause in tightening measures and the gradual pace of adjustment indicate their confidence in the data thus far. While the timeline to reach the target inflation rate may vary, the Federal Reserve’s steady approach and focus on stable employment demonstrate their commitment to achieving long-term economic stability.
About Christopher Day: Christopher Day is a Houston, Texas-based wealth advisor and founder of Day Global Advisors, a wealth management ETF aimed at empowering the 99%.
