The next Fed meeting is July 26 and Fed Chair Jay Powell is preparing the market for another rate hike of 0.25% on July 26, which will bring the Fed’s target rate to 5.50%, up from 0.00% in March 2022.
After 10 consecutive rate hikes by the Fed, on June 2023, the decision was made to leave rates unchanged. But the Fed made it clear that this was not the end of rate hikes and was nowhere near the pivot point that Wall Street experts had incorrectly predicted since late 2022. Instead, the Fed called the June pause actually a skip and warned that more hikes as early as July 26 are on the agenda.
The warning has become a very-likely reality. Unemployment is at the lowest levels since the late 60s and inflation stays stubbornly much higher than the 2% Fed target. The Fed will continue to fight inflation with further rate hikes even if it means the economy will slide into recession and higher unemployment in the future.
The big issue is that the Fed got the cause and effect badly mixed up. There is no proven positive correlation between unemployment and inflation. There is a high possibility that the Fed created the worst scenario of them all. Higher unemployment paired with persistent high inflation. We have seen this beast before. It is called: Stagflation!
Interesting to see how these currently overvalued stock market reacts.
Sven Franssen