Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Investing

The Fed Should Continue to Hold Steady

by July 12, 2023
July 12, 2023

Jai Kedia

From the moment the Fed announced its decision last month to hold target rates steady, it seemed a future rate hike was inevitable. Minutes from that FOMC meeting already showed some disagreement, with a few voices such as Dallas Fed President Lorie Logan publicly calling for further rate increases. Additionally, Fed Chair Powell’s description of June’s rate pause as a “skip” (he immediately walked it back) indicated that future FOMC meetings would conclude with rate hikes.

In a post last month, we credited the Fed for its decision to keep target rates unchanged, an improvement from its earlier Covid‐​era policymaking. The available evidence from macro indicators such as inflation and unemployment simply did not warrant a rate hike. With the Fed seemingly set to increase rates again, we reiterate our recommendation that the Fed should keep its target unchanged.

Our previous post detailed the flattening of average month‐​to‐​month inflation (as measured via the Consumer Price Index). The inflation numbers released today continue along the same trend. The CPI increased only 0.2% from May to June – an annualized rate of 2.4% — keeping it within range of the Fed’s 2% inflation target. As we have pointed out before, the correct measure of inflation is short‐​term indicators like month‐​to‐​month, not year‐​over‐​year price changes (which is currently at 3%). This is because the annual rate may remain elevated, especially when keeping last year’s extreme inflation in mind, even though the monthly changes stay flat.

The newest CPI numbers do not indicate any need for a rate hike. The Taylor rule, an approximate relation between Fed policy and its dual mandate macro indicators – inflation and unemployment, would not advise a rate increase either. Here is a simple version of the Taylor rule:

FFRt = 0.8 x FFRt‑1 + ( 1 — 0.8 ) x [ 1.5 x Inflationt –
0.5 x ( Unemployment Ratet — NAIRUt ) ]

In June, the realized federal funds rate (FFR) was 5.08%. Latest month‐​to‐​month CPI inflation was 0.2% – annualized to 2.4%. Using June’s unemployment rate of 3.6% and a 4.42% natural rate (NAIRU), the implied FFR for July should be:

FFRJuly 2023 = 0.8 x ( 5.08% ) + 0.2 x [ 1.5 x ( 2.4% ) –
0.5 x ( 3.6% — 4.42% ) ] = 4.866%

So, the Fed’s target range of 5.0 to 5.25% is already above the rule implied rate. The standard policy rule does not indicate any reason to keep raising rates; if anything it suggests a slight lowering of the target to a 4.75 to 5% range.

To reiterate, there are dangers to the Fed raising its rate target by too much, or too quickly. It may worsen credit market conditions and reduce economic activity, triggering a recession.

We restate the recommendation from our prior article:

The recent inflation figures appear to be on the right track, with annualized rates getting closer to the Fed’s regular 2 percent target. Given the stakes, holding steady makes perfect sense.

0
FacebookTwitterGoogle +Pinterest
previous post
My Washington Post Letter to the Editor about Portugal’s Drug Decriminalization
next post
Top 3 Pitallfs YOU Probably Make When Trading

You may also like

New Study Shows Decriminalization Did Not Cause Spike...

September 6, 2024

Friday Feature: Holy Family Catholic School

April 19, 2024

Thank You, Paul Krugman, for Making the Case...

August 2, 2024

Defund the (Diversity) Police

December 7, 2023

Two Types of Debanking: Operational and Governmental

February 4, 2025

Standard Econ Model Bridges the “Unfortunate Events” and...

June 7, 2023

The First Amendment Protects Against Bad‐​Faith Prosecutions

June 8, 2023

New Ships Offer a Case Study in Protectionist...

October 11, 2024

James Buckley and Federalism

August 21, 2023

Efficient, Timely and Reliable: A Framework for Election...

March 5, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Sterility test sample flawed, admits DHSC statistics expert in ppe medpro trial

      June 26, 2025
    • From Drift to Lift: Spotting Breakouts Before Momentum Hits

      June 26, 2025
    • Breakdown of NVDA’s Stock Price and S&P 500: Actionable Technical Insights

      June 26, 2025
    • ‘The mission was accomplished’: Senate Republicans push back against leaked report on Iran strikes

      June 26, 2025
    • Drone incursions on US bases come under intense scrutiny as devices prove lethality overseas

      June 26, 2025
    • GOP senator calls for parliamentarian’s firing after serving Medicaid blow to Trump’s ‘big, beautiful bill’

      June 26, 2025

    Categories

    • Business (8,316)
    • Investing (2,074)
    • Politics (15,818)
    • Stocks (3,170)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved