Looking at things from the Fed's perspective, I figure Powell would ideally like to take some of the buoyancy out of the stock market, as a 'brake' on the stubborn wage growth and consumer spending that are keeping inflation elevated. But on the other hand, he doesn't want to really tank the markets since that could take on a life of its own and create bigger problems, as well as hurt Biden's reelection.
So, I figure the Fed's goal will be a sleepy stock market, range bound, between now and the election. This keeps the 'wealth effect' in check, which otherwise drives too much spending and inflation, but also keeps things buoyant enough to help Biden get reelected.
As usual, they can use forward guidance, media spin, etc to set the desired tone and expectations, and even massage the actual economic and inflation data to fit the narrative. I wonder how much of that 'data fixing' already goes on? We know inflation data has been downplayed for decades in order to reduce the annual Social Security inflation increases. So the Fed already does this, so what's a little more? Same with election results in close elections, which is relatively easy to do with digital vote tallying.
Anyway, if the desired outcome for the 'Establishment' is a relatively sleepy runup to a relatively sleepy reelection of Sleepy Joe, what can go wrong? Next post..
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