For a record seventh time this year, the Federal Reserve has raised rates, this month 0.5%. The chairman of the Fed also indicated they may have another 1% during 2023, topping out to about 5.1%.
The market’s reaction after the announcement: a general yawn. Neither stocks nor bonds reacted very much, probably because most of this was predicted. The following day (today), however, some general negative economic news brought the market down almost 3%.
The Fed may be nearing an end in its dramatic moves to fight inflation, and for this reason, we may be getting to a point that is late in the game to worry about fighting the Fed.
In the words of Chairman Powell, to fight inflation, we will need a sustained period of low growth. He predicts an anemic economic positive growth rate of only half a percent next year. He could have just as easily said a negative growth rate by the same amount. Slow growth is predicted for some time to come.
The Fed asserted that interest rates will stay high because continued strong employment will probably keep upward pressure on prices. The current national unemployment rate is a low 3.7%. Powell predicted it could bump up to 4.6% by the end of next year.
During the press conference on Wednesday Powell also stated that there will be no cutting of rates until they see annual inflation come back down to 2% or less. Last month, the consumer price index monthly number rose 0.1%, which if multiplied by 12 months, equals only 1.2%, below the target 2%. Nobody specifically asked him about this downward trend.
The Fed loves making predictions. And they’re famously wrong over and over again.
In 2020, when asked about raising interest rates in the next three years, Chairman Powell famously remarked: “We’re not even thinking about thinking about raising rates.” Right.
Also, this is last call to give us a prediction on where the Dow Jones index will be at the end of the year to win that door prize. It’s currently 33,966. Believe me, as illustrated in the previous paragraph, our guess can’t be any worse than Federal Reserve predictions.
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The Dougherty Investment Advisor Team
Past performance does not guarantee future results.