There are two possibilities going forward, and both are daunting. Either the Fed needs to take more drastic steps to undermine market resilience, or stocks and corporate bonds haven’t even begun to price in a new Fed paradigm. A third possibility does exist around the idea—which Fed officials are hoping for—that inflation slows naturally. But there isn’t much data supporting such a thing happening, as the latest reading on retail sales for January showed.
There was a great deal of optimism earlier this year that the Fed could engineer a soft economic landing. That possibility is looking more remote by the day.
Lisa Abramowicz is a co-host of Bloomberg Surveillance on Bloomberg TV.