Fed Faces Twin Challenges of Taming Inflation and Stock Market
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The Fed needs to regain control of the equity market and rising inflation expectations despite higher real Fed funds rates.
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Inflation expectations have risen recently, indicating the disinflation process has stalled, even as the Fed has tried pushing back against rate cut expectations.
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This week's economic data on services, job openings, and jobs could help Powell push back if it shows still-high wage growth and tight labor market.
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The stock market seems to have a "casino-like mentality" and doesn't care about rates, but trades based on financial conditions, so the Fed risks further easing.
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Either the data has to support higher rates driven by a strong economy, or Powell has to jawbone the market back into place to ensure inflation doesn't heat up again as markets price in.