The Federal Reserve Responds to Inflation

Ed Mertiri |

TV Interviews with Erin Gibbs

Inflation: Its impact on the US consumer and the economy on Fox News


Large cap equities moved in a sideways pattern last week, alternating between up and down days. It looks like the market will continue to consolidate through the end of year as investors evaluate the Omicron and inflation impact for the next quarter and even year. For the last week we’ve seen Value and Growth both trade in tight ranges, with Value picking up a little performance but not enough for us to believe a value tilt is beneficial just yet.

While high interest rates have historically been beneficial for Value stocks. The long-standing logic is that as interest rates rise—as they tend to do during inflationary periods—the prospect of a payoff in the future is worth less than a more certain stream of cash in the near term. But retail investors are still heavily focused on the flashier growth stocks, keeping growth prices stable. Until we see a sentiment change for both institutional and retail investors, we aren’t willing to overweight either style.

The Fed quarterly meeting last week produced one surprise from its previous indications, accelerating the asset purchase taper. Faced with a 7% consumer inflation rate and a nearly 10% producer inflation rate, Powell was effectively forced to pull the trigger on removing some of its ultra-accommodative conditions. The taper was a good first step (overdue, in our opinion) and we hope the next meeting will be even more hawkish towards 2022 rate hikes.

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