Searching for the goldilocks economy

By: Gerald Sparrow, President & Founder, Sparrow Capital Management, Inc.


At the risk of slowing economic growth, the Fed has driven short-term rates higher to rein in inflation. But it’s a tricky proposition in my opinion.

Raise rates too much, and you may trigger a recession. Don’t raise rates enough, and you won’t be able to restore price stability. The Fed is looking for a Goldilocks moment when its monetary policy is “just right” to create a soft landing for the economy.

You may not have noticed, but early evidence shows inflation is starting to slow. I’m confident the Fed sees it, too. However, most people judge inflation by prices at the gas station and the grocery store, so inflation is genuine and painful until those prices trend lower.

But I remain an optimist. History shows that economies and markets move in cycles, so I believe the current trend is healthy in the long term. I also think smart economists at the Fed are making difficult decisions following an extraordinary couple of years.

In my view, our best days are ahead. I’m excited for the second half of 2022 and expect things will look pretty different by year’s end. Meanwhile, I’d advise taking a step back from daily news for a while.

PHOTO CREDIT: https://www.shutterstock.com/g/Haso Via SHUTTERSTOCK

DISCLOSURE

Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit nor guarantee against a loss. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be individual or personalized investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.