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No-Landing Scenario?

After 14 years of near-zero interest rates and numerous quantitative easing, the Fed Funds rate has jumped from 0-0.25% to 4.5-4.75% in nearly a year.

The trillions of dollars the Fed has pumped into the financial system over the past 14 years have influenced interest rates, stocks, currencies, and commodity prices. The normalization of interest rates and the unwinding of easy money will equally impact financial markets.

The Fed minutes from the last FOMC meeting (1/31/23-2/1/23) showed almost all Fed officials agreed it was appropriate to raise the target rate by 25 basis points. Only a few supported the half-percentage point hike at the previous meeting.

The central bank acknowledged reduced inflation. The Fed also recognized inflation remained well above the ideal target rate of 2%, and the labor market remained tight. A number of the participants mentioned the level of interest rates was still not at levels high enough to slow the economy.

The Fed reiterated that rate hikes are necessary to moderate inflation. But inflation remains above the Fed’s desired target of 2% for the long term. The minutes show Fed officials supportive of further rate increases into the year.

The Jan-Feb stock market rally has occurred in hopes of a soft landing. Although the inflation rate has cooled from its torrid runup in 2022, the labor market remains strong and resilient.

Investors believe if the economy avoids recession, it is a soft landing. Otherwise, it is a hard landing.

But what happens if it is neither a soft nor hard landing? Is it then a no-landing?

In a no-landing scenario, the economy continues with its upward move unabated, but inflation refuses to slow.

No landing implies no Fed pivot. The Fed will continue to raise rates until it feels growth is indeed slowing and that it can maintain price stability near 2%. It is difficult and often futile to fight the Fed.

Can an inflationary no-landing scenario lead to prolonged rate hikes that bring about a hard landing?

Under a no-landing scenario, what does this mean for commodities, fixed income, and equities?

Will commodities (CRB Index) continue with their structural bull trend or transition to the next commodities super-cycle?

Will US interest rates (TYX and TNX) continue to climb over the longer term?

Will the US stock market (SPX) enter a structural sideways trading range environment?

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

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