SEPTEMBER 19, 2022 – INFLATION REMAINS HIGH FORCING THE FED TO ACT
The rate of inflation slowed in August for the second straight month, but it is still high at 8.3 percent year-over-year. Prices were up 0.1 percent from July. Core inflation, which excludes energy and food, exceeded expectations coming in up 6.3 percent year-over-year and 0.6 percent from July. This data had given the Fed reason to continue tightening credit. Fed Chair Powell will announce another increase in interest rates this week.
Aggressive Fed rate hikes will weaken economic growth and may nudge the country into a downturn, making the probability of a soft landing less certain. The benchmark rate sits now in the range of 2.25 percent to 2.50 percent, with some economists predicting rates rising to 4.5 percent by early 2023.
On a positive note, retail sale rose 0.3 percent in August showing persistent demand despite high inflation. Demand was down 0.4 percent in July. Falling gasoline prices have put more money in consumers’ hands, and job growth remains strong with wages inching up. But this data justifies the Fed’s aggressive stance on rates, which are likely to go up 0.75 percent again.
Hedging, using interest rate swaps, can help you manage your company’s future loan obligations in the rising interest rate environment.