Hello Reader,
Let's talk inflation.
Last Wednesday, the Federal Reserve announced its first interest rate hike since 2018.
While the decision had been almost universally expected for quite a while, it nevertheless represented one of the more significant moves in recent history to tighten monetary policy.
And all else being equal, tighter monetary policy is expected to lead to higher financing costs for consumers and businesses, which represent headwinds to the U.S. economy.
Why would the Fed want to hinder economic activity?
One word. Inflation.
Currently, the inflation rate in the U.S. sits at its highest level in 39 years.
The Fed knows this, but it has long communicated that it wanted to wait for the economy to make "substantial progress" from an employment perspective.
That brings us to present day.
"If you take a look at today's labor market, what you have is 1.7-plus job openings for every unemployed person," Fed chair Jerome Powell said on Wednesday. "So that's a very, very tight labor market. Tight to an unhealthy level, I would say."
While the current path of monetary policy is aimed at cooling demand, the Fed seems confident that the economy will stop short of falling into a recession.
"The American economy is very strong and well-positioned to handle tighter monetary policy," Powell said.
The Fed signaled that it would raise interest rates six more times this year.
While we expected this interest rate increase, the timing of the remaining six are still somewhat of a mystery.
And so we wait.
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