The Fed jawbones market, saying that a stagflation recession in America won't happen. Markets rally but appear to be falling into a 'bear trap' . U.S. Dollar is still bid, while oil is heading back to $110. And is there a new pandemic on the way?

The equity swing trade from Low to High is in full effect until it isn't.   Mostly jawboned by Federal Reserve officials, who have lost so much credibility as a Central Bank by initially denying inflation was going to be a problem, are now downplaying a stagflation recession.  As per St Louis Federal Reserve Bank president James Bullard on the wires saying, that rate increases are essential in curbing inflation, while reassuring the market that the U.S will avoid stagflation.  Thus, in his opinion, there will be no recession with inflation on top.  What ever the rhetoric, the markets are beginning to price in stagflation, aware that company profit margins and forecasts will be crimped into a complete uncertainly as overheads, costs of running a businesses begin to climb.  Why would you hire workers in an environment of rising costs and lower output?   All the while credit and borrowing costs will be harder to come by; so who is going to underwrite risky businesses in a stagflation world?   The Fed?   Of course their close to 9 Trillion dollar balance sheet has to be reduced to justify their claims that they are reigning in excess liquidity.   This hasn't happened yet.

The other issue which is creeping up globally are governments increasing wages and attempting to maximize an already enlarged workforce to battle inflation.   This may lead to a Weimer issue that expansion of wages and paying off everybody to bring down prices, will have the opposite. We just might go hyper inflation.

With official Central Bank "speak" aside in rallying markets (S&P, Dow and Nasdaq), as noted with the Chart above year-over-year, we can see that the markets are looking more like a sell rather than a buy, with Central Bankers talk adding to volatility as noted with the separate pane below via the VIX index.  Sitting at 27, a three month high, while, the pane below the VIX, the 10 YR Break Even Inflation rate, which isn't the best measure of inflation, has fallen.  Probably in line with the fall in the oil price over the last week.  But, the U.S. Dollar (overlaid top chart) is still bid, which indicates that rate increases will continue on throughout 2022.

All is not clear in the inflation mess.

And maybe a new pandemic...

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All market commentary to date:  https://chiasmusmagazine.blogspot.com/search/label/markets