Week Ending May 21st, 2021

In another volatile week, SP500 was almost flat while Nasdaq Composite posted a slight gain. As I mentioned in earlier posts, I think inflation is going to be in between the most understood meanings of Transitory and Persistent inflation. As the monetary policy and Fed’s role has changed to a great deal since the last significant inflationary period in United States. The fed’s role has evolved since Dr. Greenspan affirmed to support the economic and financial system in 1987. 

But what if the supply side factors go crazy enough to be contained easily and demand remains robust due to re-openings, big infrastructure plans and accommodative policy until we see average inflation of over 2%.

Investors should be worried more about the sudden acceleration in consumer prices and fed falling behind. The minutes of the April meeting showed some eagerness among participants to start thinking about the plan in case inflation continues to rise. The investors must have felt a little relief last week after reading about the fed’s intention to even start thinking about the plan in upcoming meetings.

But I think markets will continue to have periodic pullbacks going forward as I feel investors are looking for quick solution to the inflation worries but inflation equation is much more complex and needs quite some time.