Inflation looking better under the hood

Fed officials will have been eyeing the flood of red on their screens this week with a growing sense of foreboding. Admittedly, for GDP growth to slow and inflation to fall, they want financial conditions to tighten, which includes lower equity prices, a stronger dollar and higher credit spreads. But they also want those adjustments in markets to be orderly and proportionate. With the S&P 500 down almost 19% since the start of the year, including 8% in the past week alone, what started out as an orderly repricing, in response to the Fed’s monetary tightening, is at risk of becoming a disorderly rout.