Last week saw lots of positive earnings reports from some of the major movers, and markets responded by climbing higher once more. Looming in the background, though, is the specter of inflation, both domestically and globally, and a supply chain crunch that is about to make holiday shopping extremely difficult, to say the least.

The Federal Reserve has signaled its planned tapering of the stimulus that was enacted in the midst of the pandemic shutdowns last year, with a plan to be completely free of all financial bond purchases by summertime of next year. Once that is finished, it will then take a look at raising interest rates from their historic zero rates right now in order to combat inflation. This is all happening much faster than the original plan to have tapering end by the end of next year as unemployment and inflation continue to grow.

“The economic cycle is moving at warp speed,” said Anthony Crescenzi, Pimco market strategist, in an interview with Bloomberg TV’s Surveillance. “We’re probably at mid-cycle. Look at the unemployment rate — 4.8%. What is a late cycle condition? An unemployment rate that’s lower, and that lower rate — full employment — could be achieved next year.”

Investors need to be paying attention to the speed of market movements and the recent wobbling, Crescenzi cautioned. Active management allows for the nimble responses required in rapidly changing market conditions, allows portfolios to capitalize on upward movement, and helps protect during downturns by responding defensively compared to passive peers.

“It’s important to be on your toes, it’s important to be active with portfolio management, to be thinking more about security selection, regional selections,” Crescenzi said.

Markets are beginning to build into their forecasts and prices an expectation of rate hikes for next year, but it is unclear yet whether rates will rise shortly after tapering is completed or if the Fed will wait until 2023. Some strategists believe that the banking regulatory agency will hold off, but with prices rising 4.4% in September, the fastest growth within a 12-month period since 1991, reported Fortune, and salaries and wages increasing the fastest in 20 or more years, the cost-push inflation potential is a very real possibility.

“Yield curve movement speaks to this idea of a fast-moving cycle,” Crescenzi said in the Bloomberg interview. “The yield curve again has flattened recently and that’s something that happens later in the cycle, because the Federal Reserve is raising the short-term rate.”

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