If you missed the highly anticipated Federal Reserve meeting led by chairman Jerome Powell, don’t worry we have a condensed recap of everything you need to know. From interest rates, inflation and discussion of a recession, we have all the information to keep you up to date.
The S&P 500 was up 0.5% on the day shortly before the Federal Reserve announcement by Jerome Powell. Additionally, early in the day oil prices were noticeably dropping, trading at $95.36 per barrel compared to the earlier in the day price of $95.80 per barrel.
WILL THE FEDERAL RESERVE RAISE INTEREST RATES?
The Federal Reserve has met expectations in terms of rate raises that have seemingly been already priced into the market. Since late 2021 the Fed has spoke on talk of increasing interest rates. The committee said it would lift interest rates a quarter percentage point, between 0.25% and 0.5%, in efforts to reduce the economy’s inflation, while trying to maintain the economies growth. The federal reserve approved the first interest rate hike since 2018. The committee mentions that there will likely be consecutive increases through the remainder of the year. Powell is confident that the economy is in a position to take on the monetary policy changes, stating,
“The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy”.
Ultimately, Powell has confirmed most of what has already been priced into the market in terms of rate hikes. Currently the market continues to price in at least double rate hikes for May futures.
The Fed announces that they expect inflation to remain high through the middle of 2022 and then slowly taper starting the beginning of 2023. It’s expected to see inflation this year at about 4.1% and overall inflation up 4.3%.
We’ve seen that inflation has been at record highs, raising concerns for the public on the cost of living and basic necessities. Historically, inflation typically falls around 2% annually. In 2018 inflation was 1.9%, in 2019 inflation was 2.3%, in 2019 inflation was 2.3%, in 2020 inflation was 1.4% and in 2020 inflation hit record highs of 7%. As of now, inflation in 2022 is on track for near 8%, making it a main concern for the Fed to address in todays meeting.
IS A RECESSION ON THE HORIZON?
When asked about the concerns of a recession in the United States economy, Powell remains confident that he does not foresee a recession in the future. Chairman Powell states,
“In my view the probability of a recession within the next year is not particularly elevated. All signs are that this is a strong economy. Household and business balance sheets are strong,” he said.
Powell ensures that the committee has a vision to work on price stability while maintaining a strong, sustained labor market. Powell is confident that they will use their tools to bring inflation down and has admitted that inflation is far above their target currently. The Fed will use the tools they have to restore price stability moving forward.
SHOULD WAGES INCREASE?
When asked about wage increases, Powell suggests that current wage increases that match the 7% inflation may not be sustainable, because inflation is expected to be slowly reduced closer to the 2-4% range. While wage increases are good to see, it’s important to make sure that the increases are sustainable once inflation works its way back to a more stable range.