Last week, Federal Reserve Chair Powell drew much attention and mockery, from some circles, on his decision to retire the word 'transitory' to describe inflation. Many saw it as an admission that he had been wrong about inflation, but in reality, he was simply saying that 'transitory' had been misinterpreted.

Further, the Fed has been quite aggressive in tamping down on inflation which would be missed by anyone who was paying attention to headline numbers, rates, or the amount of asset purchases. The Fed's change in strategy is evident through a variety of perspectives and approaches.

The first is that despite the recent market volatility, some weakness in economic data, the recent rise in coronavirus cases, and the emergence of the omicron strain, there is no shift in policy or even acknowledgement that circumstances could change. This includes many regional Fed governors even discussing the need to potentially accelerate the taper.

In fact, contrary to what the public is perceiving, it could be argued that the Fed is doing a remarkable job of fighting inflation. There's always somewhat of a tradeoff between inflation and employment. Until recently, the Fed has prioritized boosting unemployment. And, this recovery has been remarkable with lots of economic data already above pre-pandemic levels such as the unemployment rate, consumer spending, housing prices, stock market, etc.

Since about August, the Fed has pivoted to a more hawkish stance. The best way to see this is with the 2Y Treasury Note rising from 0.15% to 0.6%. Already, it's having a material impact on asset prices with oil down more than 20% from its highs. There's also hope that the supply chain bottlenecks will keep improving and create another deflationary force to combat areas that should remain inflationary like rents or wages.

It's also worth noting that the Fed Fund Futures markets are indicating 90% odds of 2 hikes in 2022 and over a 50% chance of 3 hikes. So, the Fed is tightening and not throwing the recovery off or reversing positive developments in the economy. Further, it now has room to "stimulate" by signaling a slower pace of tightening or tapering that could boost asset prices.