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Yesterday Fed Chair Powell officially removed “temporary” from the Fed’s description of inflation, noting that it will be here for a while and that the Fed will use its tools to battle it. Those tools are accelerating the taper and raising interest rates. The taper is likely to accelerate immediately, not clear yet when the first interest rate raise will be.
The Fed’s anticipated actions to throttle back inflation will also reduce growth, which itself was already challenged by supply problems (thus inflation). And effectively the Fed is using monetary policy to fight the fiscal stimulus coming out of Congress. So it seems we are in, or will shortly be in a period of stagflation. This is rising prices but low to no growth. This will last at least 6 months, likely more than a year. If the Fed is unsuccessful, we could either go into a recession or experience stagflation for multiple years.
So, in these scenarios, what are your thoughts on investment strategies to generate real returns?
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