Much of the answer lies in the way growth assets will react to future Fed announcements. The Fed is trying to mitigate a severe reaction, as it continues to offer cautious rhetoric and to reference “uncertainty” to keep markets from banking on any specific action.
At the Jackson Hole symposium on August 27, the Fed was successful at this, as evidenced by our Market Regime Indicator (MRI)1 data. The MRI chart shows that after the 2013 taper tantrum, the MRI went up sharply, while in 2015 when the Fed began raising rates, the MRI move was unremarkable because market expectations were already set for hiking. Similarly, at Jackson Hole, the MRI move was muted because Powell simply reiterated a view that was already in place — a view reflected in the increased inflation expectations we have seen throughout the year.