Chief Investment Officer | Johnson Financial Group
As Chief Investment Officer, Brian Andrew leads Johnson Financial Group's investment strategy to provide consistent, actionable investment solutions for our clients.
4 minute read time
After this week’s Federal Open Market Committee meeting (the Federal Reserve’s decision-making body), the Chairman announced an increase in the Fed Funds rate to 0.25%. A quarter of one percentage point. Doesn’t sound like much, but if you follow market pundits, you know that they have obsessed about this day for the last year. So now that the day is finally here, what does it mean?
After the FOMC meets, its public statement is picked apart by pundits and investors to see what has changed from the last statement and how the new views will impact future decisions.
This week’s statement is no different. And there were several changes worth noting. Regarding inflation, the Fed noted it “remains elevated” and reflects “supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.” The Fed is not known for clarity! In other words, the Fed recognizes that inflation will be more persistent than originally thought as supply/demand imbalances remain (e.g., a lack of new cars elevates the cost of used ones). It also acknowledges that higher oil prices resulting from the Russian invasion of Ukraine and slower investment in discovery, over the last several years, will keep energy prices higher for some time.
Going on, the Fed acknowledges the impact the war may have on the economy and inflation, stating that “the invasion and related events are likely to create additional upward pressures.” This statement provides some insight into the Fed’s thinking and tells investors that the war has some bearing on its future decisions about raising interest rates.
While the markets have rallied in the last two days based on statements indicating that Ukraine and Russia are trying to negotiate a settlement, the global impact of the war will not be over quickly, and the Fed is acknowledging that.
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