Quote from Savings Beagle on January 9, 2023, 4:58 pm

Today's "Food for Thought" article is an interesting take on what the Federal Reserve's intentions may be with regard to the U.S. economy.

As you are likely aware, much of the U.S. economy for the past 10-15 years has been artificially inflated due to the Federal Reserve Bank keeping U.S. interest rates at or near zero percent.  Zero percent interest rates allowed housing to boom, along with housing pricing.  Zero percent interest rates allowed businesses to borrow with extremely low costs associated with those loans, resulting in expansions of businesses and jobs. And, zero percent interest rates made government bonds and traditional savings accounts and similar safer investment vehicles non-starters because they paid next to nothing on the invested money.  This resulted in the U.S. stock market being the "only game in town" for those wanting to grow their money, which in turn resulted in all-time high stock market levels. 

Until the Fed changed course, that is.

Now, in an attempt to tamp down the increased inflation rates that have hit all aspects of the economy, the Fed has raised interest rates at a historically high velocity.

What's interesting, though, is that now we are beginning to see a slowing of inflation...albeit with many products and services keeping those inflated prices at the higher levels to boost bottom lines...but Federal Reserve officials continue to say the rate hikes are no where near done, and the high rates they've boosted to are here for quite a while.

The Fed actions are intentionally trying to send the economy into recession.  And that will likely be the result in 2023.  How bad of a recession is the only question at this point?

Along with why is the Fed continuing to raise rates at this point, and messaging that rates will stay high for a long time?

The article's point is the Fed is trying to return some fiscal and monetary normalcy to the U.S. economy as well as to the markets the Federal Reserve artificially inflated in the prior years.

The premise may be spot on.  And, unfortunately, if that is the Fed's intention, all of us who benefited over the past 15 years will likely pay a price as conditions are brought back to normal.

Here's a brief blurb from the article...

Now, the Federal Reserve must figure out how to wean markets off of “life support” and return to organic growth. The consequence of the retraction of support should be obvious, as noted by Crooke:

“Perhaps the Fed can break the psychological dependency over time, but the task should not be underestimated. As one market strategist put it: ‘The new operating environment is entirely foreign to any investor alive today. So, we must un-anchor ourselves from a past that is ‘no longer’—and proceed with open minds.’

“This period of zero rates, zero inflation, and QE was a historical anomaly—utterly extraordinary. And it is ending (for better or worse).”

Give the piece "Is The Fed Trying To Wean Markets Off Monetary Policy?" by Lance Roberts a read and see what you think.