The financial markets had a challenging year in 2022 largely due to the Federal Reserve’s adoption and implementation of a radical, untested theory which allowed inflation to reach a 40-year high before the Fed changed course. As a result, the markets lost confidence in the Fed, which was reflected in lower stock, bond, and commodity prices, to name a few.
For the year, the S&P 500 index declined 19.4 percent and the yield on the 10-year U.S. Treasury Note more than doubled to 3.88 percent from 1.52 percent at the end of 2021. After dismissing inflation for more than a year, the Fed frantically tried to address the problem by increasing interest rates at a record pace.
At times, to be quite candid, the Jerome Powell-led Fed has been intellectually dishonest. In one instance, a former U.S. Treasury Secretary publicly called out Mr. Powell specifically for making statements that were “analytically indefensible.”
Another issue is that Chairman Powell often reads answers to questions at press conferences, which makes it look staged and gives the impression that he is not in command of the subject matter, followed by responses that seem to confirm it. As a result, the Fed’s credibility has taken a massive hit.