So, investors need to pay attention to the Fed’s messaging, because almost every decline in the markets since 2008 has been associated with a shift in policy.<\/p>\n
Here’s why I’m telling you all this…<\/p>\n
It appears a shift in the Fed’s messaging may be underway.<\/p>\n
And today, I’ll show you exactly what to look out for, how I think the broad market will respond, and how you should prepare.<\/p>\n
The Fed\u2019s Shift in Tone<\/h2>\n
Recent messaging from the Fed can be summed up in two statements:<\/p>\n
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“We’re not even thinking about thinking about<\/em> raising rates”<\/em><\/p>\n<\/li>\n
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“Inflation is transitory”<\/em><\/p>\n<\/li>\n<\/ol>\n
The first one is simple… The Fed chooses this language to assure investors that any change in interest rate policy is far away. That should keep volatility at bay for the time being.<\/p>\n
But the second deserves more scrutiny.<\/p>\n
The Fed has referred to inflation as “transitory” because they simply focus on the supply side of the equation… The bottlenecks created by the pandemic.<\/p>\n
In their view, the inflation we’ve seen lately is just a temporary side effect of the market’s recovery from the pandemic, and that it will soon subside.<\/p>\n
But to really answer the question of whether this inflation is transitory, let’s take a look at the demand side of the equation…<\/p>\n
The chart below shows global trade volumes in merchandise over the past six years…<\/p>\n
![\"Chart\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202106\/20210608-jmu-01_vkr146.png\")
<\/div>\nAs you can see, trade volumes have actually surpassed pre-pandemic levels…<\/p>\n
That’s not transitory… That’s a demand<\/em>-fueled explosion combined with supply-side bottlenecks across industries… And this is what’s pushing prices up across the board.<\/p>\n
So it’s puzzling that just weeks ago, after the Federal Open Market Committee (FOMC) rate decision, Jay Powell assured the world that inflation is under control stating:<\/p>\n
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“An episode of one-time price increases as the economy reopens is not likely to lead to persistent year-over-year inflation into the future.”<\/p>\n<\/blockquote>\n
Powell went on to say that congested supply chains won’t affect the Fed’s position because “they’re temporary and expected to resolve themselves.”<\/p>\n
But, then came the Consumer Price Index on May 12, obliterating analyst expectations… Analysts expected a rise of 3.2%, but the numbers came in at 4.2% – the fastest rise in consumer prices since 2008.<\/p>\n
This confirms what average Americans already knew – that inflation doesn’t exactly feel “transitory.”<\/em> The cost of goods and services is undoubtedly rising, and at a faster rate than before.<\/p>\n
So it’s interesting how Fed members and alumni have shifted their tone after these numbers came out… And what that could imply for the market in the coming weeks.<\/p>\n
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