8/26/2022: Powell Wants to Raise Rates Until Inflation is Under Control
Dow falls 1000 points after his remarks.
In a highly anticipated speech on Friday at the Jackson Hole, the Fed Chair Powell pushed back against expectations that the Fed might start lowering rates after this year’s rate hikes.
While rate increases would bring down inflation, Mr. Powell said, “they will also bring some pain to households and businesses.” He added, “Those are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Well, he has been telling us over and over again that the Fed is going to be aggressive but investors didn’t seem to be convinced. The reality is that the Fed can move the short term rates but the long term rates are determined by the market and we are still seeing a steeply inverted yield curve with 30-year yield hovering around 3%.
Stocks fell today right after Powell’s remarks. Personally, I don’t believe the remarks will trigger another bear market run. With inflation, we probably would see corporates’ revenue and profits increase nominally. I would avoid companies that have a high debt load. But it might be a good time to invest in companies that have a strong balance sheet and stable revenue streams at a discount. I just bought ZM 0.00 at $80.4 this morning. Let’s see how that goes.