• US stocks have traded marginally higher over the past week in an environment of growing uncertainty about the economy’s health and inflation’s resilience. The banking sector continues to show signs of stress, most notably in the failure of First Republic Bank, which was acquired by JP Morgan Chase in an emergency government-led intervention on Monday.
• A variety of economic indicators released this quarter have been weaker than expected with first quarter GDP’s initial reading of 1.1% being markedly lower than the 2% consensus forecast. In addition, US crude oil reserves have continued to fall much more sharply than expected, and home sales have been anemic. Meanwhile, inflation has continued to rise, with some metrics remaining higher than originally projected.
• The Federal Reserve Board opted to raise over-night interest rates by 0.25 percentage points this afternoon to 5.25%. The combination of a slowing economy with accelerating inflation highlights the challenges facing the Fed—even before the full brunt of a credit crunch stemming from bank failures is felt. As we have reiterated repeatedly over the last several months, the Fed is committed to maintaining a hawkish monetary policy until inflation falls close to its 2% target level, even in the face of economic recession and/or high unemployment.
DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.