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Yet Another Fed Rate Increase… What Comes Next?

Dumaine Investments Weekly Market Update – July 26, 2023

– For the last week, the markets have continued a general path upward even as an inconsistent earnings season continues. Largely driving this move has been a breakout in optimism that a soft economic landing may yet be achieved. Whether the data will cooperate remains the multi trillion-dollar question.

– As expected, the Federal Reserve raised interest rates to 5.5% – the highest level in 22 years – as part of the sharpest series of rate increases in four decades. Notwithstanding Chair Powell’s commentary, the rate outlook moving forward is murky, although it retains a tightening bias that signals the strong possibility of an additional move later in the year. Many central bankers anticipate at least one more hike this year, but new (and softer) inflation data may reduce this conviction. There is mounting evidence that both inflation and the jobs market, though still hot, are cooling.

– A major economic concern appears to have been resolved on Tuesday as UPS and its 340,000-member union tentatively agreed to a new contract – thereby averting a strike that would have cost the economy billions of dollars. However, the agreement could act as a drag on both UPS and the US economy as the new contract’s substantial wage increases could further exacerbate inflation if other transportation employees seek similarly large salary gains.

– Consumer optimism remains robust as the recent job openings data combined with yesterday’s Conference Board Consumer Confidence Data ticked up in the latest readings – an indication that the public is feeling quite good about the job market in both sentiment and actions. However, another potential area of concern is that oil and gasoline prices are rising again. At least on a headline inflation basis, a big tumble in energy costs has been a huge disinflationary driver over the last year. Ongoing increases could appreciably affect consumer optimism and spending.



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.

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