“Asset prices have provided leverage for the Fed to ease price pressures,” Michael Farr, CEO of financial adviser Far Miller & Washington, said in a note to investors. “This seemingly risky strategy is designed to cause the opposite effect of wealth, pushing down asset prices so that people feel less wealthy and spend less. It means, it means lower inflation, or at least that’s the hope.”
It’s a hope Mr. Farr clings to faintly. He noted that the inflation expectations indicator shows that investors “continue to believe that the Fed will succeed in lowering inflation in the medium term.” If so, even without the dovish turnaround, it would help the market recover.
Tony DeSpirito, Chief Investment Officer of BlackRock’s US Fundamental Equities, is also optimistic.
“In the short term, inflation could pick up,” he said. “Many businesses are reporting excess inventories and house price growth has turned slightly negative. The real question is how fast and to what level it will go down.”
He expects the consumer price index to settle around 3-4%. But, in his view, inflation is likely to remain a chronic problem, with certain trends that have been suppressed for decades, particularly trade liberalization, easing, and a focus on supply chains. to move from efficiency to resilience.
“The long-running disinflationary impulse is over,” Despirito said.
As for short-term inflation, if the Fed is actively targeting and trying to keep asset prices in check, at least part of the target has been achieved. The average domestic equity fund fell 4.2% in the third quarter, according to Morningstar, with tech, telecoms and real estate portfolios underperforming.
Average international equity funds fell 9.5%, with European and Chinese funds particularly weak.