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What is the Fed doing about Inflation? (And What Should You Do?)

What is the Fed doing about Inflation? (And What Should You Do?)

Aside from earnings, which will be a central topic in the coming days and weeks, there were no shortage of headlines yesterday advertising America’s latest inflation reading: 9.1%.

The hotter-than-expected reading prompted many questions – but the question most high in the minds of investors is:

What is the Fed doing about inflation? 

The country’s central bank began raising interest rates to counteract high inflation in March, marking its first rate hike since 2018. In May and June, they made back-to-back raises – 0.50% and 0.75% – notching decade-long records in the aggressiveness of the hikes. As of June, the Fed Funds Rate has come to settle in a range between 1.5% and 1.75%. 

After this week’s CPI readout, the Fed looks likely to make more aggressive moves. The most likely candidate is another 75 basis point (0.75%) hike at the next meeting on July 26/27. In fact, traders have fully priced in that hike, meaning that the market sees its likelihood as very good.

However, there’s always the likelihood the Fed will embrace an even more aggressive hike – a full 100 basis point (1.00%) hike at the next meeting. A “supersized” hike could come as a result of the price pressures.

Fed Chairman Powell has already indicated that a 50 basis point or 75 basis point hike are on the table at the meeting, but given the ample calls to arrest inflation in the economy, the 100 basis point might be a dark horse.

That, of course, could fundamentally change how people attack investing and savings. And a higher rate hike will likely increase the contagion of nervy analysts, economists, and journalists worrying about recession – which is why we made a guide on how to tackle the recession (which is probably already here anyway.)

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