This post was originally published on Tker.co.
JPMorgan’s global economic research team just published note titled: “They will know I am the lord when I lay my vengeance on them.“
The quote comes from Ezekiel 25:17. It was popularized in “Pulp Fiction” by fictional hitman Jules Winnfield — portrayed by Samuel L. Jackson — who would recite the verse before dispatching his marks.
Led by Bruce Kasman, JPMorgan’s economics team employs the chilling language to characterize the Federal Reserve’s “decisively hawkish shift“ in the wake of recent hotter-than-expected inflation reports.
JPMorgan’s global economic research team just published note titled: “They will know I am the lord when I lay my vengeance on them.“
The quote comes from Ezekiel 25:17. It was popularized in “Pulp Fiction” by fictional hitman Jules Winnfield — portrayed by Samuel L. Jackson — who would recite the verse before dispatching his marks.
Led by Bruce Kasman, JPMorgan’s economics team employs the chilling language to characterize the Federal Reserve’s “decisively hawkish shift“ in the wake of recent hotter-than-expected inflation reports.
While downside risks to the economy have intensified, the economists believe “that central bankers have not completely forsaken the expansion. While the Fed should move forcefully to contain inflation, we expect it to become more sensitive to growth disappointments once rates reach 3% later this year. How quickly the expected mix of restrictive policy, inflation moderation, and a slowdown in job growth end this phase of tightening has become harder to gauge and will be a key determinant of the life of this expansion.“
The Fed brings pain
TKer readers may noticed that the tone of the last several newsletters have taken a slightly darker turn. (See here and here. Tomorrow’s weekly edition won’t be much rosier.)
It started after the May consumer price index report, which suggested inflation hadn’t peaked earlier this year. Rather it suggested inflation was actually getting worse, despite months of tightening monetary policy. The same day the CPI report was released, the June University of Michigan consumer sentiment report showed that expectations for inflation also continued to deteriorate.
The news spooked a lot of folks who were expecting inflation to be improving. Importantly, it spooked the Federal Reserve, which responded on Wednesday by raising its target interest rate by a historic 75 basis points.
“The worst mistake we could make would be to fail,“ Fed chair Jerome Powell said on Wednesday. “We have to restore price stability. We really do… It’s the bedrock of the economy. If you don’t have price stability, the economy’s really not going to work the way it’s supposed to.“
Simply put, the Fed seems pretty hellbent on bringing inflation down. And as Powell said before, “There could be some pain involved in restoring price stability.“
The bottom line
I’m of the mind that the economy and the stock market are biased to the upside in the long run. We have a long history of recessions, depressions, geopolitical conflicts, financial crises, pandemics, and even inflation scares. And yet, the economy and stock market have never failed to recover losses and come back even stronger. (Read more here.)
But in the near term, everyone needs to manage their expectations. This is not the kind of environment where you should expect a sustained rally in stock prices. The Fed has made it explicitly clear that it’ll continue to actively pressure financial markets until it sees “clear and convincing” evidence that inflation is on its way down.
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Sam Ro is the founder of Tk.co. Follow him on Twitter at @SamRo
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