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Weekly Market Impact


Jun 16, 2022

The Federal Reserve instituted its first 75 basis point hike in the federal funds rate since 1994, setting the target range at 1.5% to 1.75%. As inflation proved persistent rather than ‘transitory’ in the last year and a half, market participants had broadly accepted the new regime of rising interest rates, but the jump to 75 bps, instead of the 50 bps previously telegraphed, still took investors by surprise. Monetary policy had been historically loose for more than a decade and marked by near-zero interest rates, except for a brief, failed liftoff over 2018, so a single-day shift of that magnitude certainly appeared drastic. While many have lambasted Chairman Powell and the Fed for supporting the economy with looser monetary policy through the pandemic, essentially leaving inflation to simmer on the backburner, Phil doesn’t fault the central bankers too significantly, instead believing the stimulus was necessary and a function of the Fed’s dual mandate, in this case, meeting the objective of supporting employment. Now, eyepopping, headline inflation (8.6% in May) is the problem requiring the most attention – $5/gallon gasoline is worrying consumers and businesses alike, and undoubtedly a major reason for the larger interest rate hike. Listen in to hear the primary factor driving prices higher, where potential early signs of easing inflation are cropping up, and why this is not the same, stagflationary environment seen in the 1970s.