The Federal Reserve raised interest rates four times this year (2018). Earlier this month, December 19th, at the Fed’s last meeting of 2018, Chairman Jerome Powell signaled that the central bank’s board of governors would likely issue fewer rate hikes next year, but investors were not appeased and the Dow Jones Industrial Average fell 352 points.

Dow closes down 352 points after Fed hikes rates, and signals 2 — not 3 — increases in 2019

The vast majority of losses have come since October, when the stock market, which was experiencing the longest bull-run in history, took a turn for the worst. The stock market is on pace for its worst December since 1931, but it also set record single-day gains Wednesday, when the Dow jumped by more than 1,000 points.

The stock market woes come despite signs that the general economy is still doing well — with record low unemployment, strong GDP growth and relatively low inflation.

Article extract from

https://www.pbs.org/newshour/economy/making-sense/6-factors-that-fueled-the-stock-market-dive-in-2018

We see similar things in the economy in 2021 except that the unemployment numbers are higher and 10 million open jobs to fill. Also the prices are extremely hot. Core inflation is surging above 5.2%.

Prices will inflate with a growing economy as we had under the Trump policies. We can see the production index of the PMI (red line) rising since 2015. Prices following suite

We also can see that with a cooling of the economy the prices come down as expected after the tightening of the monetary policies of the FOMC.

Interest rate policy of the FOMC. 

Over the first half of 2018, the FOMC has continued to gradually increase the target range for the federal funds rate. Specifically, the Committee decided to raise the target range for the federal funds rate at its meetings in March and June, bringing it to the current range of 1 3/4 to 2 percent. The decisions to increase the target range for the federal funds rate reflected the economy’s continued progress toward the Committee’s objectives of maximum employment and price stability. Even with these policy rate increases, the stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

Article extract from

https://www.federalreserve.gov/monetarypolicy/2018-07-mpr-summary.htm

Conclusion

When the Price levels are much more overheated today than in 2018 when the Feds started tapering and increased the interest rate constantly by 25 bases points four times that year to cool off the market and it was pretty successful, why are the Feds not doing it now when the core inflation and also the Producer Price Index, PPI, is rising. And almost all agree that it is not transitory.

Production levels are above 2018 levels and so is the PMI. Employment is lagging but improving that has nothing to do with the artificial money supply by the Feds.

In 2018 we can see that the Production Index is slowing and declining and with it the price index. Healthy development.

Now, in October 2018 and the following months until late December the stock market crashed by 20%. And apparently this was only due to Jerome Powell’s announcement that the rate increase will continue but at a lesser rate and speed.

We have to keep in mind that maybe 50% of the inflation is a result of the bottleneck in the supply chain. But we also can assume that the other 50% of the inflation is the result of monetary policies. This is on Jerome Powell’s desk. And the Biden administration is fueling it with an additional spending addiction. Not only should Biden have a talk with Powell but they also should reduce spending for ideological projects to please the communists in their party. Biden is not doing anything of this. All of them are involved in making money in the stock market and who cares about inflation for the poor. Thus, the Correction is coming, soon. And it is predicted to be more than 20%.

My prediction is that it will happen when the yield of the 10 years federal note will reach 2.2%, now around 1.5%, and loan levels of companies reach pre-pandemic levels.

We also see that consumer expectation and economic outlook for consumer are now at the same level or below the level when the China virus hit the hardest.

We can also see that the disposable income of households are artificially held up by fiscal policies of the administration. If we would further take a look at the money flow, the velocity, we would see that it is around 1-1.2, or 20% of what it was in 2019, pre-pandemic. This market is artificially fueled.

The black spikes in the graph show you the cocaine infusion into households. Spend, spend, and spend. No work? No problem! Anyone approved for spending printed money.