Adapting to Endure Sequoia PDF

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Adapting to Endure Sequoia PDF Details
Adapting to Endure Sequoia
PDF Name Adapting to Endure Sequoia PDF
No. of Pages 52
PDF Size 3.17 MB
Language English
CategoryEnglish
Source pdfsource.org
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Adapting to Endure Sequoia

Dear readers, here we are offering Adapting to Endure Sequoia PDF to all of you. This matters because the Federal Reserve has two jobs: maximize employment and manage price stability. Inflation running high and sub-4% unemployment fueled a growing perception of economic overheating and increasing sense that the Fed was under-performing on a key pillar of its mandate.

Since we’re in the early innings of the initial shock flowing through to the real economy, backward-looking fundamentals can paint a particularly unreliable picture regarding what’s to come. The economy is set to slow, and at this point, it’s a debate about magnitude.

Adapting to Endure Sequoia PDF

COVID fiscal mandate: massive monetary stimulus

  • In response to COVID, governments around the world embarked on a combination of extraordinary fiscal and monetary stimulus to fill a massive demand hole created by the pandemic. This helped prevent an extremely severe recession but came with consequences.
  • During the pandemic, this money printing revealed itself in asset prices, especially in companies perceived to be beneficiaries of themes like remote work and e-commerce acceleration.
  • As the economy reopened, this liquidity creation manifested itself in bottlenecks and distortions throughout the real economy, leading to supply chain challenges and price pressures as demand overwhelmed supply.
  • Inflationary trends have accelerated since early 2022, with the war in Ukraine exacerbating the supply chain complexities and commodity price squeeze. At this point, we’ve all seen the various charts showing inflation spiking in recent months. More important than the moment in time inflation is the increasing long-term expectations for inflation as expressed by the bond market – where 5-year forward inflation expectations are at the highest levels in decades.

The new Fed mandate: control inflation, tightening liquidity conditions

  • This matters because the Federal Reserve has two jobs: maximize employment and manage price stability. Inflation running high and sub-4% unemployment fueled a growing perception of economic overheating and increasing sense that the Fed was under-performing on a key pillar of its mandate.
  • Then the Fed pivoted to tighter money – this chart shows expectations for year-end 2022 Fed Funds – 10x’ing since September as the expected # of rate hikes in 2022 went from sub-1 to >9. This implies an abrupt increase in the cost of money and a tightening of economic conditions. Beyond hiking rates, the Fed is also planning to shrink its balance sheet – further contracting liquidity in the system.

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