With inflation fears rattling markets, one strategist said investors should appreciate the U.S. Federal Reserve’s newfound transparency because it wasn’t always so easy to understand the central bank’s playbook.
In a note to clients this week, Invesco Chief Global Market Strategist Kristina Hooper said the evolution in the Fed’s approach to communicating with the public is nothing short of “transformational” when compared to how tight-lipped it was in the 1980s.
“I’m old enough to remember when the size of then-Fed Chair Alan Greenspan’s briefcase was the best indicator of what the Fed’s decision on rates would be at the next FOMC meeting,” she said.
“The Fed of 2021, in contrast, is extremely transparent, working hard to telegraph its views and actions before taking them.”
In referencing the Fed’s Average Inflation Targeting policy, which aims to push inflation above two per cent and attain full employment before tightening, she said the “old Fed” would have pulled the punch bowl away just as the party was getting started.
“But the current Fed is patiently accommodative and is flexible enough to leave the punch bowl out long enough for partygoers to get tipsy,” she said.
Hooper added that market participants are likely more afraid of the Fed’s response to inflation than inflation itself, noting many of the near-term price pressures are mainly reflecting base effects of a recovering U.S. economy.
She noted, however, that anyone predicting sharp tightening measures and rate hikes should add to value positions in their portfolio as a hedge.
“Though it’s far from my base case, if persistently higher inflation were to occur, investors could be tactically allocated to exposure in cyclicals and commodities for a diversified portfolio,” she added in an interview Wednesday.
“I think investors should be using the market sell-offs to add exposure to beaten sectors like tech to their portfolios.”
Invesco currently holds $1.46 trillion in assets under management.
This article originally appeared on BNN Bloomberg.
