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.
1 State Street Global Advisors’ Market Regime Indicator is a tool used for risk budgeting that puts a range of forward-looking indicators into a percentile; typically, a lower MRI is more favorable for equities.
The views expressed in this material are the views of Thomas J Kennelly and Dane Smith through the period ended September 28, 2021 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Investing involves risk including the risk of loss of principal. Past performance is no guarantee of future results.
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EXP: September 30, 2022