Don’t Fight the Fed Has Never Been More Important Than Now

The Fed and Chair Jerome Powell came out swinging this past week, raising interest rates, while once again investors were shocked and dismayed. Frankly, I don’t understand why that is, but suffice to say the Fed is on a mission.

Powell and the committee have voiced their views for months in a consistent manner. Yet, their message over the inflation fight seems not to be getting through to most people.

When you decide to go against the Fed you’re going to eventually lose. You see, the committee has a time line of zero with a blank checkbook. Those are two extremely powerful and influential tools. With endless time and money the Fed can influence behavior like no other. We’ve seen it on both sides of the market, with extreme floods of money that winds up in the stock market and other risk assets.

For the bulls, most recently in 2020 and then back in 2009, the Fed aggressively purchased bonds and backed up other assets to prop up markets. This action might have saved the stock market and wealth at the time, but the consequences are what we face today: a bloated Fed balance sheet and high inflation. The Fed said don’t fight, and if you were bearish you were run over by a train.

For the bears, recent liquidity drains – as the Fed tries to reduce its balance sheet – and higher interest rates cast a pall over the stock market. The perception in the market is denial of course, repeating mantras of the past like ‘don’t trust the fed’, and ‘they will never have the courage’. Seeing is believing though, as the current economy is careening off the rails towards a recession. For the bulls trying to fight this battle and win, a discouraging situation with continued losing.

It was a year ago this week that I mentioned to my chat room to write down two things on a post it note, and leave it on your monitor or desk. It was simply this: The Fed has changed the game, and the stock market will not bail you out any longer if you make a mistake. Most listened and have lived to fight another day, always being aware of the conditions. And we remain vigilant to this day, waiting for what the next move in the market will be rather than trading with a bias.

As Marty Zweig once stated so eloquently, “DON’T FIGHT THE FED!”

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Source: https://realmoney.thestreet.com/investing/don-t-fight-the-fed-has-never-been-more-important-than-now-16111546?puc=yahoo&cm_ven=YAHOO&yptr=yahoo