Understanding the current economic cycle and what the FED is doing
Hello! Today I want to talk about the current economic cycle we're in. It's very much, in my view at least, an economic cycle still well within the shockwave Covid caused, the largest result of said shock being high inflation. We do have several other factors contributing to inflation currently, namely the war that started between Russia and Ukraine in the 1st quarter of the year which sent several commodities and goods soaring in prices more, but I believe we're still in the economic event of trying to stabilize what was a rapid, big shakedown caused by Covid.
We are ending 2022 as an year where there's barely any stocks ending above their January 1st levels. Many investors out there are hurting, many have folded, some have outperformed indices and have had gains this year. For those that are hurting and may lack some macro knowledge, I hope today's post will help contextualize the current economic cycle, and in addition to that, help you better your decision making in what's currently a downtrend in the economy and stocks. The Covid shock, in hindsight, was supposed to be a big demand shock (negative), hence why equities flash crashed, with people flocking from stocks anticipating a big drop in company revenues, in example. However, it rapidly turned into a negative supply shock. This shock was supposed to be temporary and quick enough that central banks needed not to worry about inflation, but it turned out the shock was long enough to move central banks, namely the US FED, to change their policies. This cycle should still be temporary, albeit a long one.
So, today I'll look into the cycle of a temporary supply shock, taking a page from macroeconomy theory, what are the appropriate measures to deal with it, what has currently been done, where exactly are we in the cycle, and when will the US FED pivot their economic policy stance.

To help really understand the cycle we're at, we need to go deeper than just the events that are described in the picture above, but you can get a quick summary of the whole deal above. To aid us, we'll use some graphs to help us really know what's going on. We'll use some measures and terms in the graphs below, namely: