We believe the declines in stock and bond prices this year are dramatic but not illogical… and the two are interrelated. Bond prices are falling because inflation keeps surprising to the upside, in our view, leading investors to continually raise their expectations of the amount by which the Federal Reserve will have to raise interest rates.
We believe, stock investors, in addition to worrying about rising interest rates, are concerned by a fundamental change in Fed priorities and the risk of a recession. We think it is too early to say that inflation is clearly peaking, and that the Fed’s tightening monetary policy will soon change.
This week we outline what we are monitoring and explain that, while many of our internal indicators show no signs of improvement, some are starting to suggest that supply chain pressures are easing.
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