The Federal Reserve has gotten extra aggressive about fighting inflation.
The Fed recently raised short-term interest rates by 75 basis points to a range of 1.25% to 1.50%.
It was the most significant increase the central bank made in a single announcement since 1994.In its policy announcement, the Fed said it was "strongly committed to returning inflation to its 2% objective."
"We have to restore price stability," Jerome Powell, the Fed chairman, said during a press conference with reporters. "It's the bedrock of the economy. If you don't have price stability, the economy is not going to work as it's supposed to."
Powell has long argued that tightening monetary policy and bringing down inflation was possible without sending the economy into a recession.
Specifically, he's said that by cooling demand, the excess demand for labor — reflected by the nearly two job openings per unemployed person — would ease and bring down wage growth, which in turn would slow broader inflation metrics.
However, inflation remains very high.
"What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down," he said at a Wall Street Journal event in May. "And if we don't see that, then we'll have to consider moving more aggressively. "
At that event, Powell also warned: "There could be some pain involved in restoring price stability."
Powell continues to insist that a recession is not the aim.
"We're not trying to induce a recession now," he said. "Let's be clear about that."
None of this is great news for those hoping for a sustained recovery in the financial markets.
The Fed wants tighter financial conditions, which means lower stock valuations, higher interest rates, stricter lending standards, a stronger dollar, and so on.
Powell all but confirmed that the Fed was hoping for a bear market.
And so, as long as inflation shows no signs of letting up, investors should manage their expectations for near-term returns.
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