Central banks around the world are once again acting in concert. The last time, in 2020, it was a coordinated response to the pandemic, with unprecedented capital infusions into their respective economies. Today, without admitting or denying guilt of over-stimulating, they are all working to bring inflation under control, despite the inherent risks to the growth outlook. Both stock and bond markets were punished in August – see chart below.
Looking at the YTD column, the question for investors now, heading into the fourth quarter is – Is that enough? Has the market sufficiently discounted the damage the Fed will likely do to the U.S. economy breaking the back of inflation? I do not know the answer and don’t think anyone does. However, I am confident that the market will be among the first to signal an accurate prognosis as we move toward year end.
Be well,
Mike