July 18, 2023
For two years from the inception of the pandemic, the Federal Reserve kept short-term interest rates close to zero. Then as the pandemic waned and the economy bounced back, the Fed went on an inflation fighting campaign and they raised rates at ten straight meetings over a 15-month period. At the last meeting in June, they finally took a breath and paused. This means for the first time in approximately 3.5 years, we are now guessing whether the Fed will act to raise interest rates.
Last month in testimony before Congress, Fed Chair Powell was clear that they were not finished raising interest rates as the fight against inflation has seen progress, but there was a way to go before we bring inflation back to the target of 2.0%. Thus, the monthly progression of inflation is being watched like a hawk – in this case an inflation hawk. Last week we saw the release of the Consumer and Producer Price Indices, which both showed inflation easing monthly and year-over-year. We have not reached the Fed’s goals, but we are inching closer each month.
While these numbers are important, there are other indicators the Fed is watching. For example, wage inflation and the Personal Consumption Expenditures Price Index (PCE). The PCE will be released at the end of the month together with data on personal spending. Wage inflation comes early in August with the jobs report. A lot of numbers to consider and the Fed does not meet in August. Could they move to raise rates one more time in July because there will gap between meetings? Let the guessing games begin!
Source: Origination Pro