Rising inflation is a bit like a child throwing a temper tantrum in the grocery store.
The red-faced parent, in this case the U.S. Federal Reserve (Fed), tries to calm the child. Sometimes, it works and the child calms down (soft landing). Other times, the child won’t settle, and the parent takes more extreme action, like leaving and coming back for groceries later (recession).
The Fed is laser focused on calming inflation. At a June press conference, Fed Chair Jerome Powell said, “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two and a half years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”
To calm inflation, the Fed has tightened monetary policy aggressively, taking steps that include raising the federal funds target rate by 1.5 percent from March through June of this year. Raising the fed funds rate pushes interest rates higher so borrowing costs go up, and consumer and business spending fall. Lower spending slows economic growth and prices fall.
According to data released last week, the United States economy is slowing but remains quite strong. The data showed:
“…the jobs report, in particular, might not have been as good as it looked. While the establishment number was very strong, the household survey showed a loss of 300,000 jobs, while the unemployment rate remained unchanged at 3.6% only because the workforce shrank. At the same time, average hourly earnings increased by a mere 0.3% in June from May’s level, lower than the rate of inflation.”
Last week, major U.S. stock indices moved higher, according to Barron’s, while Treasury bonds lost value as yields moved higher across the yield curve.
https://www.barrons.com/articles/services-economy-recession-51657120253?mod=Searchresults&mod=article_inline (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-11-22_Barrons_Services%20Growth%20Slows%20Reaches%20Lowest%20Levels%20in%202%20Years_4.pdf)
https://www.barrons.com/articles/stock-market-dow-nasdaq-sp500-51657330112?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-11-22_Barrons_The%20Stock%20Market%20Just%20Had%20a%20Great%20Week%20The%20Next%20One%20Could%20Be%20Messier_5.pdf)
https://www.barrons.com/advisor/articles/retiring-overseas-income-investments-community-conversations-51657222902?mod=hp_ADVISOR (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-11-22_Barrons_Retiring%20Overseas%20and%20Income%20Investments_10.pdf)
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