| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3817 Registered: 05-2011 Rating: N/A |
Growth stocks perhaps starting to appreciate a more aggressive Fed The Producer Price Index for November, which showed the index for final demand up 9.6% year-over-year, was a hot inflation report. In other words, it wasn't good. If anything, it served as another reminder that the Fed has been playing with an inflation fire that is going to require some extra help to extinguish it. That is, inflation won't burn itself out quickly. Inflation pressures will persist so long as the Fed's monetary policy is stimulative like it is today and, importantly, like it still will be tomorrow when the Fed is likely going to announce an increase in its tapering pace and release a new dot plot that should show an increased probability of three rate hikes in 2022. The fact of the matter is that the target range for the fed funds rate is still going to be at the zero bound and it is expected to remain there until at least May or June 2022. Say what you will, but a target range of 0.25-0.50% in May or June for the fed funds rate is still dovish (i.e. stimulative) and that is the inflation-fighting problem. The Treasury market seems to know it, too; hence, the yield curve has been flattening with short-term rates rising and long-term rates falling despite some nasty inflation prints at the consumer and wholesale level. The message of that move is that the Treasury market is anticipating the Fed is going to be playing catchup to the inflation problem and will look to make up ground in getting it under control by being more aggressive with its policy tightening efforts. The stock market might now be sensing as much, too. The weakest stocks today (and yesterday) are the growth stocks, which will be more sensitive to rising interest rates. |