Investors warn of ‘disconnect’ as markets price in early Fed rate cut

Financial Times/Kate Duguid and Colby Smith/8-20-2022

“’It is, to me, a glaring market mispricing,’ said Rebecca Patterson, head of investment strategy at Bridgewater Associates. ‘Market participants are conditioned from previous cycles to expect the Fed to pivot’ to a more dovish stance, she added.”

USAGOLD note: We return to yesterday’s comment on this ‘disconnect’………Isn’t it time we developed definitions for the terms dovish and hawkish more suitable for the times? Is it hawkish or dovish to raise rates, but keep them a considerable distance from the inflation rate? In our view, it is simplistic to call the Fed hawkish simply because it raises rates. The central banks of Argentina, Venezuela, and Zimbabwe have been raising rates for years, yet their inflation rates are now 70%, 167%, and 257% respectively, and climbing. No one would be so foolish as to characterize their central banks as hawkish. Wall Street reacts to the act of raising rates as if it were a market edict delivered from atop Mr. Sinai when the real effect on inflation might be to moderate rather than throttle it.

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