I can’t say it does, Chris. But for me, it’s got to be inflation, inflation, inflation, because I don’t know if you heard, Chris, there is a little bit talk about inflation during the year. November data indicated that prices have increased seven percent year-over-year. That’s the highest increase in four decades. Fed officials for months had been insisting that inflation was transitory and closely tied to COVID-related factors that eventually, they said, would fade. However, in recent days, Chairman Powell and others have indicated that the word “transitory” is perhaps no longer appropriate and likely will be dropped from future communications. Supply chain bottlenecks, surgeon demand, primary drivers of inflation, in this particular case, they’ve only eased marginally. But the labor market has firmed up, headline unemployment rate recently falling to 4.2 percent.
This likely creates some cover for the Fed to act to combat inflation. At the Fed meeting on December 15th, the Fed said it would double the pace by which winds down its bond buying program. The new pacing would bring all asset purchase to a full stop by March of 2022. They also signaled that interest rate hike was likely for next year. Projections currently indicate that three rate hikes will happen next year, another three in 2023, another two in 2024. Markets actually rallied on this news, perhaps counter intuitive. But I think investors would welcome a proactive Fed gradual rate hikes and an end to quantitative easing rather than runaway inflation.
