If history is the guide, in March 1980, inflation peaked at 14.6%, and Fed raised rates to 19.1% to bring back inflation to the neutral rate in June 1981. And, if the Core inflation is at 9%, is a 2.5% Fed rate enough to tame the beast? In our opinion, Markets misread the Fed statement on the inflation expectations and future rate hikes, and we see the future Fed is nowhere near taking a break from increasing rates. Instead, the most significant challenges to the Fed are Expansionary fiscal policies and political opposition to running the economy below full potential.
