The current stated goal of the Fed is to defeat inflation with restrictive monetary policy. However, many are concerned that they will over-tighten. Given the "long and variable" lag of monetary policy, some believe they once again are behind the curve... but in the other direction.
According to this reasoning, they have already made a policy error and the economy will soon head to a tailspin, making a soft-landing all but impossible.
One measure seems to indicate the Fed is not moving too aggressively, and instead exercising caution, prudence to prevent a catastrophic error that could lead to a severe slowdown and painfully excessive job losses. The Adjusted National Financial Conditions Index (ANFCI) is based on 105 indicators of financial activity, and it seems to show that perhaps the Fed is moving at just the right speed.
https://i.imgur.com/b0FkcoC.png
Financial conditions are looser than historical averages and when Fed started Quantitative Tightening in June. Moreover, there was some tightening in March but April things seem to be settling down again. We also see that banks are lending again after pausing during the banking crisis in March.
https://fred.stlouisfed.org/graph/fredgraph.png?g=12YJE
Personally I have faith in the Fed and believe they made a mistake, acknowledged it, but not overdoing it. A pause or hike-then-pause seems like a sensible and careful approach that they will soon take.
Thoughts?
[link] [comments] https://www.reddit.com/r/stocks/comments/133dvey/fears_of_a_hardlanding_will_the_fed_overtighten/
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