Earlier this week, Fed Chairman Powell said it was time for the Fed to stop talking about accelerating inflation as a "temporary" phenomenon. According to Cole Smead, president of Smead Capital Management, the Fed's new stance on inflation could deal a serious blow to risky assets such as stocks.
Recently, inflation in many countries has risen above the target values of Central Banks, which reinforced expectations of an earlier than expected tightening of policy.
Smid said Powell's latest statements are an admission that he was wrong when he previously considered inflation to be a "temporary" phenomenon. Smid added that the potential impact of Powell's change of position on the Fed's monetary policy and the value of risky assets may be underestimated.
"In recent days, many stocks have been under massive pressure, and although part of the fall may be related to the news of the first cases of the omicron strain in the United States, the key reason is investors' concerns about Fed's pivot to being wrong," said Smid.
Smid added that American consumers are feeling "incredible inflationary pressure," and real yields will rise sharply if the Fed starts to tighten policy more actively, which in turn will have disastrous consequences for risky assets.