Thursday, June 2, 2022

Inflation and Economy Top Issues. Fed Late to the Game.

Polls show that inflation and the economy are now the top issues for voters. The Federal Reserve and many major financial analysts were clearly taken by surprise at the surge of inflation later in 2021 and its tenacity into 2022.

By March, inflation reached above 8 percent, breaking 30-plus year records. The Fed’s belated response has been to speed up tapering of quarantine easing (purchasing securities in open market), and finally in April, raising interest rates 0.25 percent and 0.5 percent in May. Expect 3 to 5 more increases this year.

It is undetermined how high rates (measured by 10-year bond) must go to bring down inflation to reach the Fed goal of 2 percent, but many observers believe it will require at least 5 percent. They are also skeptical that interest rates will get below 4 percent at the end of this year.

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