Investing.com-Rampant inflation may destroy the “Fed’s put options” because even if the Omicron variant puts pressure on growth, the Fed will be forced to tighten, but the lack of attractive alternative investments will keep stocks popular.
“By severely restricting the FOMC’s ability to deal with the downside risks brought by Omicron, inflation has actually destroyed the Fed’s put options,” Jefferies (NYSE:) said, referring to the Fed’s easing policy when the market drops sharply The belief to intervene.
But even if inflation will force the Fed to tighten policy and limit the ability of the central bank to respond to the market downturn, since the returns provided by US government bonds are unlikely to appear at the door of the stock market, the pursuit of yields will continue to attract investment in dollars as soon as possible.
“[I]Investors will have to find a way to get half of the return [on the 10-year Treasury yield] Eric Diton, president and managing director of the Fortune Alliance, told Investing.com in an interview with Investing.com earlier this week.
“This is indeed one of the main reasons why we are still bullish on global stock markets, because I don’t think we will see 3% or 4% anytime soon, and global interest rates will continue to remain low.”
For several months, Powell has believed that the factors pushing up inflation are temporary.
But after the Fed chairman admitted that the Fed underestimated the duration of the inflation rise, all this changed this week, and hinted at speeding up the pace of reduction and reduction on the agenda of the December meeting to help control price pressures.
“The economy is very strong and inflationary pressures are high, so in my opinion, it is appropriate to consider ending the cut asset purchase plan that we actually announced at the November meeting, perhaps a few months in advance,” Powell said. Testified before the Senate Banking Committee this week.
After Powell pointed out the downside economic risks posed by the Omicron variant of Covid-19, these remarks surprised some people.
Nevertheless, even if the “Fed’s put options” appear on the verge, the threat of new variants is unlikely to undermine the economic recovery, because consumers are strong enough to fill the gap to a certain extent.
“We are still in a very large stage of the global economic recovery, even if this change may make it unbalanced, it will not undermine the global economic recovery,” Diton said.
“Consumers account for 70% of GDP and their financial situation is very good,” Diton added. “The stock market is likely to see a good 10% to 20% correction, but it will be a buying opportunity.”
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