Interest Rates

You may have noticed interest rates have been fluctuating up and down based on uncertainty about what the Federal Reserve will do in the near future. This is the normal speculation that occurs when there is uncertainty about future Fed action.

The Fed impacts interest rates by words and deeds. They actively influence rates through rate cutting or rate hiking. They also influence rates by implying in words what they might do in the future based on underlying inflationary pressures and the strength of the labor markets. 

The Fed has a difficult mission; keep inflation under check but not so much that it pushes the economy into recession. This is why often times they use words as their primary tool. Rate cuts don't allow for flexibility. Adjectives, however, can shift from speech to speech. The language used tends to impact the price of stocks and bonds.

We still believe the Fed will cut rates this year. We believe inflation is starting to move lower, and that the full impact of past rate hikes have not yet completely impacted the economy. We will be watching closely for signs inflation is continuing to ease.

As you read conflicting articles, remember that Fed language can change on a weekly basis and often times is dependent on which Fed Governor is making a speech or sitting for an interview. Keep that in mind as you digest the conflicting headlines.