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Fed Boosts Key Interest Rate 0.75%

Fed Boosts Key Interest Rate 0.75%

| June 20, 2022

What an “interesting” week. In a move unseen since 1994, the Federal Reserve has taken an aggressive stance toward inflation by raising the key interest rate by three-quarters of a percentage point.

Investors initially seemed cheerful, but stock prices soon fell as the reality emerged that interest rates would continue to rise.

About 1 1/2 year ago, when there was a huge push for an increase to the minimum wage, I explained to many people that this would be met with unintended consequences. Simply put, you cannot produce a $9.99 pizza at $15/hr. wages. So, I anticipated the impact of wage inflation. Then the glutton of post-Covid spending exasperated by extra stimulus money created more demand than supply. Again, economics 101, so anticipated. When coupled with the supply chain disaster and the attack on Ukraine inflation reared its ugly head. Now, one might think that a looming recession might get people to curtail their spending. Not so. There is still extra cash, after all, if you haven't had to pay your student loans for over a year, what would you do with those funds?  With consumer prices soaring, pushing short-term rates higher is an attempt to slow economic growth while attempting to avoid a recession. Fed Chair Powell said that he expects rates to go up again at the July meeting and indicated that the Fed would take future decisions as they come.

In times like this, it’s good to remember that we’ve considered volatile markets when designing your financial strategy.