The S&P 500 has been thriving while the Federal Reserve has frozen the federal funds rate. Conversations have subsided about rates dropping this summer. In fact, there are questions about whether the Fed may have to consider raising rates.
The S & P 500 climbed nearly 9% in the first four+ months of 2024. Investors appear to be more optimistic about economic forces than consumers.
The Street talked with several financial executives who expect the first of two rate cuts to take place in September. Read why they believe that here. Will that make consumers feel better?
So, what about the question of rate increases instead? A New York Times article pointed to this comment from Federal Reserve Board Chair Jerome Powell on whether he thought that rates were high enough to get inflation under control: “We believe it is restrictive, and we believe over time it will be sufficiently restrictive,” Mr. Powell said.
He also then added this, “That will be a question that the data will have to answer.”
Powell said that he expected rates to fall. But he didn’t definitively say that rates would not rise.
And why would he? What if inflation increased again?
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told Bloomberg News that improvements in the supply chain were likely a major factor in inflation’s decline last year. But he said that he needs more data to determine what to expect from inflation in the months ahead.
“It’s a little too soon to declare that we’re definitely stalled out, or maybe it’s just taking more time,” Kashkari said.
But he added that, “I think we’re in a good place right now.”
Will 3% inflation become the “new normal.” No, Kashkari believes. “The Fed can and will achieve 2%.”
The Fed has been striving for 2% inflation and has made monetary policy with that figure in mind.
On May 1st, the Fed released a statement that included the declaration, “The Committee is strongly committed to returning inflation to its 2 percent objective.”
That statement included some context about factors that members will watch but enough vagueness to make predictions about future actions more challenging.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
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