Can the Fed Stop Inflation?

I haven’t spent much time recently focused on the markets, but every time I check my investment account I wince. For a while I’ve been betting that we will see high, sustained inflation AND that the fed will be too slow to tighten monetary policy. What we know:

• We have experienced high, sustained inflation
• The fed has begun tightening monetary policy and has signaled that they are more concerned about inflation than previously stated
• Covid supply chain issues have not abated
• We are still in the midst of the tightest labor market in recent memory

I still think we will see strong inflation through 2022 and potentially beyond – even if/when covid supply chain issues abate, our demographic driven retirement wave will continue to cause labor shortages.

I think the fed will do what they say and continue to tighten monetary policy, but I believe there is an upper limit to where they will let rates go. I think that limit is quite low. I would be surprised if financial markets allow the fed to make it to 1.5% on the fed funds rate, not to mention the treasury department will pressure the fed to slow down as the federal government’s interest rate bill skyrockets (I don’t feel like inserting any sources, but find a chart of the fiscal deficit since covid began).

Anyways the market is clearly focused on the fed’s transition to faster tightening and has crushed the inflation trade, but ultimately the fed doesn’t have the bullets nor willpower to squash the inflation that is still to come.

I’m letting my trades ride.