The Fed Risks A Recession To End Inflation, As Expected

Published Friday, August 26, 2022 at: 7:22 PM EDT

5059 2

At an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell said on Friday that the Federal Reserve would slow the economy to fight inflation and that it would cause “some pain” in the economy. 

The top of The Wall Street Journal’s website Friday evening heralded news of a 1,000-point plunge in the Dow Jones Industrial Average of 60 stocks. The Fed chair’s remarks were bumped from the top story slot of The New York Times and The Washington Post but were page-one news. 

The Fed chairman’s remarks and stock market plunge should not be a surprise if you’ve been reading our weekly updates. The Fed has little choice but to tighten monetary policy even if it causes a recession if the burst of inflation experienced post-Covid 19 is to be snuffed out. 

The Fed knows from history – specifically, from the Great Inflation of 1965 to 1982, that it has little choice but to risk causing a recession. During the 17-year stretch of inflation that peaked 40 years ago, policymakers learned that inflation could not be trifled with, and it would be ended only after the then-Fed-chair, Paul Volcker, imposed tight monetary policy, knowing it would cause a recession, which lasted 17-months, from July 1981–November 1982. 

The Fed chair’s remarks and stock market reaction are no surprise to those who know details of financial economic events 40 years ago. 

5059 3

The Standard & Poor’s 500 stock index closed this Friday at 4,057.66. The index lost -3.4% from Thursday and -4.12% from last week. The index is up +57.83% from the March 23, 2020, bear market low and down -16.7% from its January 3rd all-time high.

​The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.   ​​​​​​​​


Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

2024

    2023

    2022

    2021

    2020

    2019

    2018

    2017

    2016

    2015

    Company Info

    35 Pinelawn Rd., Suite 101E
    Melville, NY 11747
    631.454.2000

    845 Third Avenue
    Suite 1703
    New York, New York 10022
    212.371.3950

    Our Disclosure

    Wealth Advisory solutions provided by subsidiaries of Percheron Asset Management Group, Inc.: Herold Advisors Inc. and Lantern Wealth Advisors, LLC., SEC registered investment advisors. Securities offered through Herold & Lantern Investments Inc., a registered broker dealer, Member FINRA, MSRB, SIPC.

    Bernard Herold & Co., Inc.
    Rule 606(a)1 Reporting Public Disclosure

    Herold & Lantern Investments, Inc. Rule 606

     

    This website uses cookies for navigation, content delivery and other functions. By using our website you agree that we can place cookies on your device. I understand