As inflation climbs, the Fed reacts.
At its June meeting, the Federal Reserve confirmed what many of us have suspected for some time: prices are rising. In fact, prices are climbing faster than many expected. In response, the Fed raised its inflation expectation to 3.4%, up from its March projection of 2.4%, effectively raising its inflation expectation by 42%.1
The Fed’s course correction on inflation expectations and planned interest rate hikes unsettled the financial markets, with further volatility felt after St. Louis Fed President James Bullard said that the first interest rate hike could be as soon as 2022.2
The Fed also indicated that two interest rate hikes in 2023 were likely, despite signals last march that rates would remain unchanged until 2024.3
So, what’s an investor to do?
It’s important to remember that inflation is just one of the factors considered when creating a portfolio. If inflation trends higher than expected for some time, adjustments may need to occur.
Fed Chair Jerome Powell also said at the June meeting that he believes that inflation will be transitory. But as evidenced by the recent changes, the Fed remains ready to update its outlook as economic data continues to accumulate.
Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
1. The Wall Street Journal, June 16, 2021
2. StLouisFed.org, June 18, 2021
3. The Wall Street Journal, June 16, 2021
BCJ FG 21-68