There’s been no shortage of historic news lately, from an increasingly barbarous war in Eastern Europe to the Senate’s confirmation of the first Black female justice to the Supreme Court. But through it all, the dominant story on Wall Street remains the Federal Reserve.

As Russia fights Ukraine, investors are remembering not to fight the Fed.

But are you able to interpret the cryptic language of the Fed? Known on Wall Street as “Fedspeak,” this lexicon is crucial to your investment decisions.

In the late 1990s, American economist Alan Blinder called Fedspeak “a turgid dialect of English.” As any investor knows from reading the central bank’s pronouncements, Fed officials purposely provide vague and ambiguous statements regarding monetary policy, to avoid causing overreactions in the markets.

Read This Story: Your Fed Decoder Ring

Consider the recent utterances of St. Louis Fed President James Bullard. On the surface, Bullard’s remarks on Thursday merely seemed to confirm what financial markets already knew. He said interest rates may still need to rise 300 basis points and that he supports hiking rates in the range of 3% to 3.25% in the second half of 2022.

Bullard, among the more hawkish Fed officials, said the central bank is “behind the curve” on rates but moving in the right direction.

Bullard’s monetary policy remarks actually calmed markets, because he didn’t upset Wall Street expectations. He also conveyed the impression that the central bank has a steady hand on the tiller.

Bullard’s comments came a day after the release of the Federal Open Market Committee (FOMC) minutes that indicated officials almost approved a 50-basis-point rate hike in March, but settled on a less drastic 25 points, largely because of headwinds caused by the Russia-Ukraine war.

The main U.S. stock indices started Thursday’s trading session in the red but pared losses in the afternoon and closed as follows: the Dow Jones Industrial Average +0.25%; the S&P 500 +0.43%; the NASDAQ +0.06%; and the Russell 2000 -0.39%. Thursday marked a stunning reversal of fortune, with the Dow down 306 points at its low and the NASDAQ erasing a 1.4% decline. In pre-market futures contracts Friday, the major U.S. indices were trading in the green.

After a battering in the first quarter, are stocks on the cusp of a new upward leg? Fact is, while Fed rate hikes threaten equity valuations, underlying conditions still support a (cautiously) bullish outlook, and real yields (after inflation) remain negative. History shows that during the first 12 months of the start of a Fed tightening cycle, stocks perform well.

Are risks of a recession overblown?

Influential analysts this week warned of a looming recession, but those forecasts are belied by high household savings and falling unemployment.

The U.S. Labor Department reported Thursday that initial unemployment claims last week declined much more than expected to hit the lowest level since 1968. The rate of new layoffs and firings remained low compared to pre-pandemic averages (see chart).

First-time jobless claims, for the week ended April 2, came in at 166,000 versus the consensus expectation of 200,000 expected and a revised 171,0000 during the previous week. Continuing claims, for the week ended March 26, came in at 1.523 million vs. 1.302 million expected and a revised 1.506 million during the previous week.

For months, economists far and wide have debated whether the U.S. economy has entered a prolonged period of low growth and what would happen when the Federal Reserve ended its unprecedented stimulus program.

Would these inflated assets and companies start to fail one-by-one as the artificial support of stimulus is removed, and as such, would the U.S. economy fall into a recession, or worse, a deflationary period akin to a second depression?

Under the current uncertainty, I wouldn’t blame you for being nervous. And yet, despite risks such as the war in Eastern Europe and rising interest rates, I still think the economy is strong enough to dodge the recession bullet this year, and possibly next.

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John Persinos is the editorial director of Investing Daily.

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