Every expectation is that the Federal Reserve Open Market Committee is at or near the end of their historic series of interest rate hikes.
Just 17.5 months ago, the Fed’s target overnight interest rate was between 0% and 0.25%. Today it stands between 5.25% and 5.50%. In those months we have seen year-over-year headline inflation skyrocket over 9% and grind lower to 3.2% as of July.
Yet the Fed has not reached its long-term inflation target of 2%. Unemployment remains historically low. The economy appears to be accelerating instead of decelerating. Energy prices are rising. These are not economic datapoints that indicate lower inflation in the future.
So what is a Fed to do? Bond traders are signaling a very low probability of a Fed rate hike on September 20, but a 40% chance of an additional .25% rate hike on November 1 according to the CME FedWatch Tool.
The Fed has made every effort to instill in us their resolve to fight inflation first and clean up any economic messes afterwards. However, with an election looming in November next year, their tolerance for economic messes may be weaker than they are saying publicly.
We will likely know their true priorities by the end of the year.
