Today’s release of the Fed meeting minutes for June indicated that there is an agreement for another 50 – 75 basis point increase this month (after June’s 75 basis point increase). The officials also indicated that an “even more restrictive stance could be appropriate if elevated inflation…persists.” Another 75 basis point increase would put the Fed Funds rate at 2.25% -2.50%, right at the Fed’s “neutral” rate. So, further increases after July would put it officially in “restrictive” territory. Another takeaway from today is the Fed feels the battle is shifting to one of “messaging”. Expectations of future inflation are becoming prevalent for the first time in decades. Fed officials worry that this expectation can result in more entrenched inflation. The notes also show that Fed officials believe that their constant messaging on their willingness to tame price increases is critical in reassuring consumers. The bright side? Officials note that by raising rates quickly today, they will have more flexibility later to pause or slow down in the fourth quarter and early next year. This Friday’s release of the June employment report will be closely watched – especially the hourly earnings increase and participation rate. Stay tuned…
By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
