In a masterful performance the Federal Reserve this week signaled that it recognized inflation running well ahead of targets. But the committee members speculate that the price increases will be transitory, suggesting that the onetime re-opening trade, enormous pent-up demand, as well as supply chain shocks are largely to blame, and as such, inflation will moderate shortly. This belief allowed the committee to maintain its current rate and asset purchasing posture. The Fed did, however, signal a timing change for the expectation of rate increases from 2024 to 2023.
All in all, a performance designed to assure investors that the members are aware of the inflation risks but don’t want to spook the markets or upset the economic recovery.
Message to investors- party on!!
It’s not surprising that structural interest rate and inflation fears may be overblown given the onetime extraordinary nature of the factors mentioned above. But also remember the very powerful secular forces driving the economy from a technology perspective, are themselves, quite deflationary. Taken in combination with raising labor rate pressure these things tend to offset.
So where should investors be positioned? We continue to believe strongly in the areas that will reshape our lives in the coming years- how and where we work, how and where we play, and how we stay healthy. In other words, technologies that completely disintermediate traditional industries: The cloud and associated infrastructure, changes in transportation technology, AI (artificial intelligence) added to applications in various forms, and new therapeutics and diagnostics curtesy of the biotech revolution underway. These are but four of these enormous secular changes currently influencing our economy. And as we’ve mentioned before, these trends are actually accelerating.
So, for now, the bull market is alive and well.