Investors are skittish in their attitude toward risk taking, as depositors have turned away from some banks in the search for safer havens. Concerns about economic recession have returned, and expectations about Federal Reserve (Fed) policy have swung wildly. This quarterly installment of Economic and Market Observations will remind us that this was part of the Fed’s plan.
• The policy interest rate has been raised almost 5 percentage points in little over a year with the intent of slowing the growth of spending to be more in line with that of resources to return inflation to goal.
• To work, we believe the plan requires tightening financial conditions and crimping credit availability, as played out through the standard monetary transmission mechanism.
• In the event, Fed firming got surprisingly little traction for a year only to bite harshly with banking crisis in the spring of 2023.
We will discuss the Fed’s intent and results thus far, emphasizing the risks to the global economic outlook, both inherent in the effort to reduce inflation and potentially self-inflicted by politicians.
Please view the transcript under the attachments tab for important disclosures.