FAST FIVE: The Fed's Second Act Problem

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#3: How FOMC decisions affect stock prices, the real-world problem that matters most to us.

Over this period the index rose by 270%, and most of those gains happened the before, the day of, and the day after a Fed meeting.

Ten-year TIPS, for example, currently yield -1.0% and the implied inflation breakeven is 1.6%, right where it was pre-COVID.

Bottom line: with fiscal stimulus likely off the table through the November elections, the Fed knows it is alone in carrying the Act Two narrative forward for now.

Sources: NY Fed Weekly Economic Index, which does show some recent improvement in the US economy: https://www.newyorkfed.org/research/policy/weekly-economic-index#/interactive NY Federal Reserve “Fed Drift” Paper (2018, with 2011's analysis included): https://libertystreeteconomics.newyorkfed.org/2018/11/the-pre-fomc-announcement-drift-more-recent-evidence.html The Fed's 2020 Markups to Its “Longer Run Goals” Statement, where it deletes mentions of the SEP: https://www.federalreserve.gov/monetarypolicy/guide-to-changes-in-statement-on-longer-run-goals-monetary-policy-strategy.htm Fed Balance Sheet (flat since June): https://fred.stlouisfed.org/series/WALCL.

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