Short Ideas

[gfp927z]

Looking at how the Fed could respond to the new reality of 'instant inflation' from the tariffs, they obviously don't want to be forced to raise % rates. Instead, since the economy and stock market have been relatively strong, the Fed could benefit from a lower stock market, to reduce the 'wealth effect' and cool off the economy and inflation.

Anyway, that could be the 'least bad' strategy for the Fed. The inflationary effect of these tariffs should show up almost immediately, but raising % rates for any length of time will worsen the debt problem. So they let the stock market drop instead, and achieve a similar result as higher % rates would produce, but without worsening the already rapid accumulation of debt.

With this strategy, while they want a lower stock market, they need to avoid a mega crash that would require a return to ZIRP, etc. The Fed must avoid that, so if the stock market decline gets out of hand, they periodically step in with the PPT. So this is one approach the fed could take. The stock market will be dropping anyway due to the tariff bombshell, so just engineer the drop over an extended period of time, and use the PPT as needed to prevent a panic / crash. The goal would be to get into a market correction (10% drop), but probably not as far as a bear market (20% drop).



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