Investing amidst the inflection in the fed policy cycle

UBP
By January 11, 2022 08:02

Investing amidst the inflection in the fed policy cycle

Key points

  • The surge in inflation in 2021 combined with the sharp fall in unemployment leaves two of the US Federal Reserve’s key policy objectives within reach as the year comes to a close.
  • Moreover, with US housing prices rising at a pace seen only three times since the early-1980s, the Fed must likewise keep its financial system stability objectives in mind consistent with the start of a Fed policy tightening regime that markets are increasingly expecting in 2022.
  • Looking back to the nine policy tightening cycles the Fed has undertaken since the early-1970s, bond investors face a challenging road ahead with rising short and long-dated Treasury yields characterising almost all of these periods.
  • Surprisingly, equity investors have fared better, at least in nominal terms as seven of the nine policy tightening regimes have seen the S&P 500 deliver positive returns driven almost exclusively by earnings growth.

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UBP
By January 11, 2022 08:02

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