It would have made for great theater if the Fed truly wanted to win the war against inflation. Unfortunately, the Fed already blinked.
If the Fed’s mission truly was to get CPI back down to 2%, the valuation froth that began to manifest in 2019 peaking with 2021’s valuation mania (which made the 1999-2000 dot com bubble look like amateur hour), would finally come to a bloody end. If the Fed was serious about fighting inflation:
- Scores of Software companies trading at 20x Revenue would be no more. For perspective, 20x EBITDA is rich in a normal, non Fed-subsidized market.
- The various old-world services companies masquerading as Technology companies (buy now pay later, online gambling and CRE leasing to name several categories), would completely lose their luster and in certain cases be required to formally restructure under bankruptcy law.
- Many companies that have already lost 80-90% of their value (think Crypto and EV companies), would go to zero – although that is likely to happen to many regardless of the Fed’s policy position.
Sadly, we won’t get to observe full market carnage as the Fed under phony hawk Chairman Jerome Powell already blinked. On June 15th Powell stated that the Fed will not declare victory in the war against inflation until “there is compelling evidence that inflation is coming down”. Not that inflation is back at 2% and will remain at 2%, but “coming down”. Read the full transcript of Chairman Powell’s testimony HERE. See Powell’s comments that we referred to below.