The Federal Reserve’s Message

The Federal Reserve has indicated in very clear terms that it is their intention to do all they can to reduce inflation. This is important but also runs the risk of pushing the US economy towards a recession. 

The balancing act the Federal Reserve must put in place is to stimulate the economy enough to avoid a recession AND reduce inflation so that prices do not spiral out-of-control. One of the ways the Federal Reserve does this is by releasing comments indicating what action they intend on taking. It’s clear Chairman Powell is adopting this strategy.
 
Portfolio strategies at DWM are positioned for higher inflation and a slowing economy. There may be additional adjustments needed as data becomes more apparent.
 
A recent article on CNBC.com outlined the stance of the Federal Reserve based on comments made this week. Excerpts are provided below.

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“Federal Reserve officials earlier this month stressed the need to raise interest rates quickly and possibly more than markets anticipate to tackle a burgeoning inflation problem, minutes from their meeting released Wednesday showed.

Not only did policymakers see the need to increase benchmark borrowing rates by 50 points, but they also said similar hikes likely would be necessary at the next several meetings 

They further noted that policy may have to move past a “neutral” stance in which it is neither supportive nor restrictive of growth, an important consideration for central bankers that could echo through the economy.

“Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” the minutes said. In addition, Federal Open Market Committee members indicated that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

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Source: https://www.cnbc.com/2022/05/25/fed-minutes-may-2022.html