US Federal Reserve Chairman Jerome Powell has said he is willing to go to 50 point hikes at the next meeting and to hike at every meeting this year.
That will not be enough. The Fed has lost control. Lost the game.
The first wave of inflation, supply chain disruption and opportunist profit margin building is still being played out while the latest historic impulse to energy and food is only just beginning.
The latter being entirely inelastic to the goings-on of central banks anywhere and particularly for the way behind the curve Fed. The Fed is so far behind the curve that if it was attending an opera, it would be locked out until intermission. And even then, it is forging headfirst into a mythic level tragedy.
Markets are currently attempting to reverse initial war trends.
Europe will likely go into recession
This is not expected to be sustained as Europe will likely enter recession and with the world experiencing ongoing high energy and food prices, the poor will be disproportionately impacted.
And raising interest rates will have zero impact on this war-driven inflation wave.
We warned of inflation being permanent and going higher a year ago.
It is now too late for the Federal Reserve or any central bank to catch it.
Declining global economic activity
The result will be a steadily declining level of economic activity globally with ever-higher inflation and the Fed making its second major error by raising interest rates in a panicked chase that will lead nowhere.
This is not a long-term outlook that is sympathetic to stock market valuations. The current equity market rally is therefore likely to be a temporary affair.
Market participants are finally beginning to recognise this is no look across the valley moment. The spectacular rally of the past week is actually a gift horse rally that should be aggressively sold.
This is everyone’s opportunity to again hedge against war. It is an important step every money manager and investor should be considering seriously right now.
The other important hedge for the next 12-18 months is to buy oil and energy generally.
As well as national governments desiring greater reserves in this heightened uncertainty, there is no assurance Russia may not begin to dial back the gas flow to Europe as it feels increasingly isolated and attacked.
That may have been the last good rally of the year.
