Market Briefing
Although the U.S. Federal Reserve appeared slow to grapple with accelerating inflation in early 2022, market-implied inflation expectations generally remained grounded. In this piece, we argue that the Fed’s eventual shift to an aggressive monetary policy stance was critical to that anchoring, offering an analysis based on market indicators that estimates the effect of monetary policy on inflation expectations. Our analysis supports the view that absent aggressive Fed policy, inflation expectations may well have become unanchored, with far-reaching implications for asset prices and correlations.