Capital Market Review

  • Capital Market Review
  • October 2022
  • Iron Capital Advisors

Does The Fed Have to Pivot?

For those who pay attention to financial pundits, the word “pivot” is becoming very familiar. These sources of pseudo-wisdom keep saying that the stock market cannot maintain a rally until the Federal Reserve pivots from a policy of raising interest rates to a policy of lowering interest rates. They are, as usual, wrong, but there is something bigger afoot here:  This modern idea that we must be on one extreme or the other. In this case the Fed must be either raising interest rates to fight inflation or lowering interest rates to fight a recession. This is absurd; The Fed can just hold steady, maybe provide some stability.

The Fed is overrated. They have undue influence on financial markets, but how much control do they really have over the real economy?

We are battling inflation today which, to a large extent, has been driven by rising gasoline prices. One of the main drivers of high gas prices is the lack of refining capacity. Under today’s regulatory environment, opening a new refinery would be next to impossible. The Fed can raise rates forever, but that will not refine a single gallon of gas. Increasing refining capacity will require some regulatory reform.

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