The Fed’s Pause – The Newest Rate Decision
With a cooling macroeconomic environment and regional banking worries subsiding, the Federal Reserve did what most expected and paused rates for their most recent meeting. After a lower-than-expected CPI reading for May, the Federal Reserve opted to retain the current benchmark funds rate between 5% and 5.25%. With a long but steady trajectory towards 2%, May’s CPI year-over-year at 4.0%, and the recent month-over-month reading for PPI at -0.3% seemed enough for the Fed to restrict any further tightening of rates. Although the news of the pause didn’t necessarily rattle markets, the post-meeting comments from Fed Chair Jerome Powell certainly did.
Jerome Powell reiterated that not only is the Fed anticipating no rate cuts this year, they even believe any loosening of rates may not begin to take place until a couple of years. He stated that not one of the twelve members of the FOMC has voted for a rate cut this year, and investors now believe that the next meeting in July may warrant a hike. He continued his remarks by referencing areas of the economy that have continued to see prices rise, such as rental costs. Taking up nearly a third of the CPI, housing rents have continued to rise to 8.7% in May, accounting for over 60% of the total increase in Core CPI for the same month. The overall theme of this post-meeting conference was time, and exactly how long the Fed plans to take in having comfortable control over inflation. Powell and his associates believe that speed is not as valuable as effectiveness, and the process to bring CPI down to the normative 2% level may take several years. Nevertheless, the probability of a rate hike in July’s meeting stands at 71%, however, insights into retail sales and the labor market will release at the end of this week.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.