Having spent the last two years correcting his catastrophic mistake from 2020/21, when Powell injected trillions in excess liquidity and sparked the second biggest inflationary breakout in modern US history (surpassed only by the near hyperinflation of the Volcker era), the Fed chair has scrambled to preserve his credibility and legacy by pushing rates to the highest level in 4 decades in hopes of taming inflation and avoiding the mistake of the 1970s "Arthur Burns" Fed, when premature easing ending up sparking a second wave of even more devastating inflation which culminated with rates rising as high as 15%.
Unfortunately for Powell, at least as far as the market is concerned, he has already lost the battle and the war.
According to a new basket introduced last week by Goldman Sachs, called simply the GS1970 Inflation Comeback basket (GSXU1970), traders are now rewarding stocks that would benefit from a return of the inflationary tsunami of the 1970s. In other words, the market is confident that a second, far more dangerous wave of inflation is about to be unleashed.
