The first step toward taming inflation was to increase oil reserves. The Biden administration announced today that they will release Strategic Reserve oil in order to reduce the price of oil. Will it assist them in lowering the inflation rate? No, because it will be temporary, and OPEC+ will respond by reducing production. But I believe it is a good start.
Since last Friday, the 10-year Treasury bond yield has risen to 1.66 percent. Since then, the Nasdaq has fallen 3% because higher bond yields are frequently the most damaging to technology equities. Higher yields devalue future gains in today's terms, so many IT companies are investing heavily now in order to reap significant profits later would get hurt.
What was the source of the inflation? Was it the result of the US stimulus package and monetary policy? It most likely helped, but most developed countries are experiencing this dangerous climate. However, as a result of the stimulus package, US demand has survived the pandemic. They were able to consume with that money power, resulting in an unprecedented increase in demand, which led to a supply crunch. Then it has an impact on the global price level.
So, what should they do to control inflation? I believe it is up to the Fed and the central banks of other countries. Globally, interest rates are extremely low. They must use this monetary policy tool to combat inflation. The Fed has begun to slow down its bond-purchasing program. I believe they will expedite the process. The market anticipates that the Fed will raise interest rates by June 2022. If the Fed is wrong that the current inflationary environment is transitory, interest rates will be raised sooner.
To protect your capital from this unstoppable trend, reduce your allocation of fixed income (mostly shorter-term bonds) and avoid investing in any tech companies at this time.
We know which way the market is going. It is present. But, as we all know, once the dust settles, there will be many good companies at a discounted price. As a result, we should keep an eye on these candidates.
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