The writer is president of Yardeni Research
In my opinion, investors have turned too pessimistic about the outlook for the US economy and stock market. I don’t recall so much stock market bearishness in a very long time.
I think it’s mostly because the “Fed put” is kaput. The US Federal Reserve has long been expected to step in to bail out markets whenever things get tricky. But now it can no longer be counted on to do so. That’s because inflation hasn’t been as serious a problem as it is today since the 1970s.
The Fed finally acknowledged as much late last year and has increasingly pivoted away from its dovish stance during 2020 and 2021 and started to tighten monetary policy. It is widely expected to have no choice but to raise the benchmark federal funds rate to higher than 2 per cent to subdue inflation. However, the vigilantes in the bond market have already tightened credit conditions significantly.