Timely Financial News

Inflation, Mixed Economic Data, and The Fed’s Plan

BY Leslie Thompson | CFA®, CPA, CDFA™, Chief Investment Officer, Co-Founder | May 3, 2022

The Federal Reserve will issue its policy statement on Wednesday, followed by a press conference with Fed Chair Jerome Powell. The Fed is expected to raise rates at this meeting with futures pricing in a 99.8% probability of a 50 bps hike, making it the sharpest hike in over 20 years. The Fed is also expected to announce the shrinking of Treasury and mortgage bonds beginning in June. The major topics that will likely be discussed during the press conference will be inflation and the Fed’s plans. Besides inflation, one of the major issues has been the mixed economic data, which was headlined recently by the negative first-quarter GDP results.

On the other hand, consumer spending and job growth are still strong, at least now. Nonetheless, the Fed is in between the proverbial “rock” and a “hard place” when it comes to raising rates as they need to fight inflation while keeping the economy out of a recession. Further out on the yield curve, the market has taken the Fed’s job into its own hands. The U.S. Treasury 10YR Yield Index (TNX) is up over 90% year-to-date and is close to the 3.0% level for the first time since 2019.

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