The concept of the Gravitron is that riders stand along a wall in a large, upright barrel as the ride spins. At maximum speed, the floor would drop out from underneath the riders. Because of the centripetal force, riders would be stuck to the wall. All is fun until the person next to you gets sick. In the financial world the "Feditron" (Federal Reserve) is dropping the floor by raising interest rates and adjusting policy as circumstances change, creating wild swings in the markets. This is not a new ride for the Fed who normally steps in to support markets after they are in total meltdown, not just a normal market correction.
Real Gross Domestic Product (GDP) decreased at an annual rate of 1.4% in the first quarter. A recession is commonly defined as two consecutive quarters of negative GDP. I have never seen the Fed hike rates after a negative GDP quarter, and they are also reducing money supply at the same time, increasing the cost of borrowing while decreasing market liquidity. Additionally, with consumers paying more for goods and services many are unable to afford their mortgages. There are also other signs of economic challenges.
We already know that inflation in the United States is high, and now I predict the “stag” part of “stagflation” is about to arrive. General media projections are for a soft landing. In my view, this is going to be something for the history books. Huge government handouts (stimulus), that accelerated in 2020, kept businesses afloat that were not financially sound to begin with. The current economic environment checks all the boxes for a coming recession.
Fed forecasting compared to market forces (which the Fed cannot control) should be interesting to watch (remember their recent wording “transitory” just five months ago). Now the Fed is saying they can easily get inflation under control. I foresee a continued volatility in the markets, so buckle up for riding the Feditron.
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Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results.