Shares were sold on Monday after Federal Reserve Chairman Jerome Powell said: “If we think it is appropriate to raise [by a half point] In a meeting or meetings, we will do it. “
To bolster his seriousness, he added: “If we decide we need to tighten beyond common means of neutrality and give a more restrictive stance, we will do so as well.”
The comments came in a a speech To the National Association of Business Economists. Even the title of the speech, “Restoring Price Stability,” marked the Fed’s tough stance.
Powell had already told Congress earlier this month that: “I knew Paul Walker. I think he was one of the greatest public servants of the period – the greatest economic public servant of the period.”
Walker’s inflation struggle was similar
newer Investors Maybe not familiar with Walker.
The former Fed chairman pushed short-term interest rates above 20% in the 1980s. Walker focused on stopping double-digit inflation.
His approach led to recession and double-digit unemployment. But it also lowered inflation and formed the basis for the long bull market that ran from 1982 to 2000.
The chart below shows a short-term view of the Walker market. It shows both the Federal Fund Gate (blue line) and the S&P 500 (black line).
Shares rose as Walker raised interest rates
Stock prices were volatile, but the trend of the first rise in interest rates was bullish. Shares rose when the Fed demonstrated its commitment to halt inflation.
The S&P 500 peaked before the first round of interest rate hikes. And the second round of hikes preceded a steep bear market.
The Bottom Line: This chart offers a potential roadmap for the current market. We’re in the early rounds of the Fed’s battle. This is the time when stock prices can go up.
As long as Powell is transparent with his plans, we can see a strong rise in stocks. If inflation has secondary increases as in the 1980s, it is likely that the market is bearish.
But for now, history says stocks should go up.
Michael Carrhe The editor of Masters of True Options, One Trade, Peak Velocity TraderandPrecision gains. He teaches technical analysis and quantitative technical analysis at the New York Financial Institute. Follow him on Twitter@MichaelCarrGuru.
Fed Chair Powell Follows Volcker’s Lead on Inflation — Why That’s Bullish Source link Fed Chair Powell Follows Volcker’s Lead on Inflation — Why That’s Bullish