The Fed Is Stuck Fighting the Last War

Published On Dec 13, 2024, 9:00 AM

The article discusses the Federal Reserve's ongoing struggle to manage inflation amid changing political landscapes, particularly with the incoming Trump administration which is notably sensitive to inflation after recent elections. While inflation has decreased from its peak, it still exceeds the Fed's 2% target, placing the institution under pressure to maintain its independence. Economists suggest that the Fed may need to reassess its inflation target to handle potential economic downturns more effectively. The author likens the Fed's approach to a general fixated on past conflicts rather than preparing for future challenges.

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With the Fed's focus shifting and potential policy changes on the horizon due to new administration pressures, financial markets may experience volatility. Investors historically react to such uncertainties, typically favoring sectors that withstand inflation or whose rates could rise in response to Fed actions. Therefore, sectors like utilities or consumer staples might outperform while more volatile stocks could face downward pressure.

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