At times such as the ones we are currently experiencing, the last thing we need is for our central bank to be divided.
Unfortunately, that’s exactly what seems to be occurring.
On one end of the spectrum, we have multiple Federal reserve officials stating that strong demand and supply bottlenecks would push up price inflation “more than anticipated.”
And on the other end of the spectrum, other Federal Reserve officials believe that the same factors that have contributed to historically low inflation numbers “could again exert more downward pressure on inflation than expected.”
So does that mean that our future inflation numbers will even out somewhere in the middle?
Unfortunately, with all that has transpired in our country in the past 12 months, that outcome seems unlikely.
Some feel that the Fed’s policy has been “too easy” and that they will have a tough time defending these policies over the next few months.
The Fed claims that their first rate hike won’t take place until 2024.
However, after March’s job report was released, which showed a growth of 250,000 more jobs than expected, many believe that the rate hike will come much sooner.
In fact, in reaction to the report, the fed funds futures market began to set expectations for a rate hike in late 2022, more than a year sooner than expected.
Head of global macro strategy at Morgan Stanley Investment Management, Jim Caron, believes that the Fed is facing one of its most challenging tests ever.
“They’re going to go through the gauntlet now. They’re going to go through the toughest part of the gauntlet in April and May,” Caron said.
“The data is going to be good. This quarter is going to test their credibility… The second quarter is going to be plus 10% growth, and inflation is going to get to core PCE around 2.5%, and they’re going to say, ‘this is transitory.'”
Ironically, the better the employment numbers become, the harder the Fed’s job will get.
It truly sounds, looks, and feels as if we are being squeezed with not many, if at all, options left.
The Fed raising their rates sooner than promised could be the flag-waving for the run of inflation.
Since when has that ever been good?
Just when there seems to be no answer to economic uncertainty… Remember, there’s always a golden lining.