U.S. Federal Reserve Board Chairman Jerome Powell speaking in Washington, D.C., November 2022
Elizabeth Frantz / Reuters

Investors do not listen. Even amid the extreme market volatility of 2022, after the U.S. Federal Reserve had signaled that it would take a much more hawkish approach to fighting inflation, the financial markets continued to deny economic reality. Particularly in the United States, investors optimistically scanned U.S. Federal Reserve Chair Jerome Powell’s public remarks for signs that the economy had endured enough pain to bring inflation back down to the Fed’s two percent target. Over and over, they were disappointed.

On December 13, 2022, reports of cooling inflation were greeted with euphoria by the markets. But the very

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