The Fed’s Game Of Chicken With The Stock Market

The following chart suggests the stock market still has an outsized influence on the economy.  In theory, the market capitalization to GDP ratio should be a mean reverting time series.  

We don’t know for certain, but we suspect there is still way too much liquidity/money, however loosely defined, in the system.  Markets don’t rip as they did in January with tight money.   

If the Fed downshifts too much, the stock market rips, and financial conditions will ease bigly.  Consequently, inflation will turn up from a much higher base.   

Godspeed, Jay Powell!














Related: Recession Forecasts At Odds With Bullish Formations