May Economic Insights

The Federal Reserve raised its key federal funds rate again in May to 5%, its tenth consecutive increase since March 2022.?With inflation remaining stubbornly high and the unemployment rate hovering near historic lows, the Fed is expected to finally pause its rate hikes, while keeping financial conditions tighter for longer. This is at odds with the expectations of some investors who have been hoping for rate cuts in the near future.?The Fed has signaled that it will continue on its current path until inflation nears the Fed’s long-term target of 2%.

If you recall Fed chair Jerome Powell’s words in late 2021, he predicted inflation would be “transitory” and would not stick around for very long. From where we sit today, it is easy to look back and confirm this prediction did not hold true.?Because I’m sure the Fed does not want to be wrong on the back end of this inflationary battle — as they were on the front end — I do not expect to see any rate cuts in the near future (barring any major unforeseen developments).

Massive government spending and stimulus, implemented since the onset of the COVID pandemic, has created economic pressures that will take time to subside. We have seen positive signs of improvement in recent months, but we are not yet in the clear.