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Feds Inflation Fight Gets a Boost Amid the Wall Street Rout

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Investing.com
By Bloomberg

© Reuters. Feds Inflation Fight Gets a Boost Amid the Wall Street Rout

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(Bloomberg) -- Beneath the latest global market disruptions are clues that the Federal Reserve is making slow but sure progress in its bid to curb the excesses of this inflation-addled business cycle.

Ever-tightening financial conditions and the draining of stock-market froth suggest Wall Street is taking the Feds hawkish stance seriously, a development that should eventually help cool the expansion. Meanwhile falling market-derived inflation expectations constitute a rare win for monetary officials on a mission to convince Americans that price pressures will ease soon enough.

Its not all good news, clearly. Amid the stock slump, big retailers are seeing their earnings weaken as the inventory build-up grows. While that may suggest a shift in spending habits from goods to services -- easing supply-side bottlenecks -- any softening in demand from the American consumer would hurt the business cycle, just as US rate hikes kick in.

Yet for all that, a case can still be made that the central bank is able to pull off something of a soft landing despite the recession alarms. Heres a rundown.

Breakevens Take a Breather

Saddled with what Powell has described as famously blunt tools to reduce inflation, the Fed can do nothing to repair supply chains or expand energy and food production. The best it can hope for is that demand will ebb, for both physical goods and speculative assets. Signs are emerging that at least that is beginning to happen.

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