The Federal Reserve has abandoned its “inflation is transitory” stance and says inflation is “persistent.” Stocks lost 2% from last week’s all-time closing high.
The change in Fed policy is illustrated in this chart by Fritz Meyer, an independent economist. The Fed had been predicting inflation would peak at 4.1%. But its inflation benchmark, the Personal Consumption Expenditure Deflator, shot past 4.1% to 5% in October.
On Wednesday, at a press conference, the Fed chief admitted inflation has been more persistent than expected and said the Fed now expects inflation to peak at between 5.3% and 5.4%, shown in the dotted gray lines in the chart above. The peak will occur in the first quarter of 2022, according to the Fed forecast, and then collapse to 3% or less in the second quarter of 2022.
The Standard & Poor’s 500 stock index closed Friday at 4,620.64. The index lost -1% from Thursday and -2% from last week, when it closed at an all-time high. The index is up +69.5% from the March 23, 2020, bear market low.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.