https://www.wsj.com/articles/what-to-know-if-you-want-to-buy…
**What to Know if You Want to Buy the Stock Market Dip**
**The Federal Reserve is giving the stock market a fright as it ramps up its efforts to control inflation. The volatility may last longer than investors have come to expect over the past few decades—but you can still prosper with discipline, patience and courage.**
**By Jason Zweig, The Wall Street Journal, May 13, 2022**
**For years, investors have believed the Fed would listen to their cries of pain. Think of 2018-19, when the Federal Reserve raised rates but then retreated after stocks fell almost 20% — or early 2020, when the Fed slashed interest rates again and infused the markets with cash. Investors celebrated.**
**Professional investors call this the “Fed put,” a notion derived from trading in put-option contracts. Owning a put enables you to sell the underlying asset for a specified price by a given date. That shields you from any declines below that price until the option expires....**
**But with inflation above 8%, cutting interest rates anytime soon would be like testing a flamethrower in a dynamite factory.**
**“The Fed put is kaput,” says Ed Yardeni, president of Yardeni Research Inc., a firm that advises on investment strategy. “The Fed can’t possibly respond to the cries of the stock market when inflation is such a big problem.”...**
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Look at the history of the fed funds rate. The Fed acts in cycles. They form a strategy which lasts months.
https://fred.stlouisfed.org/series/FEDFUNDS
In order to control inflation, the Federal Reserve has to stop paying people to borrow money. They have to raise interest rates to “neutral” – which will theoretically neither stimulate nor inhibit real economic growth. There has never been an example where the Fed raised rates enough to reduce inflation from 8% to 2% without causing a recession.
The Fed is still very early in the cycle. Don’t expect them to reverse quickly as they did in 2018. Inflation was controlled in 2018 but it’s out of control now.
Wendy