AUGUST 1, 2022 –- FED RAISE RATES, INFLATION HOLDS STEADY, GDP FALLS
Last week was very newsworthy. The Fed raised interest rates by 0.75 percent for a second month in a row. The personal consumptions expenditures index (PPE) rose to the highest level since 1982, with a 6.8 percent increase in June. The PPE is followed closely by the Fed policy makers along with the employment cost index, which rose 1.3 percent in Q2 and 5.1% year-over-year, another record increase. It was reported that US GDP fell by an annualized 0.9 percent in Q2, the second quarter in a row, an indicator usually of a recession, yet unemployment remains at historic lows.
The Fed has been using a series of rate increase and has reduced their asset holdings, attempting to curb inflation which is running at a 40-year high. After Fed raised rates last week, Fed Chair Powell said the central bank remains strongly committed to bringing down inflation.
The markets expect the Fed to raise rates by another 0.5 percent at their September meeting; however , the probability for another 0.75 percent increase rose to 38 percent last week.