Why the Fed Should Stop Raising Rates After Tomorrow
Author: Greg Valliere
July 25, 2023
Headwind 1 — A slowing in real disposable income, thanks to the resumption of interest payments this fall on student loans. And savings from pandemic aid have been virtually exhausted.
Headwind 2 — Militant unions, not just the Teamsters but also including auto workers, airline employees and hotel workers, are raising the threat of of a potential disruption in the supply chain. This headwind alone may give the Fed a reason to pause this fall.
Headwind 3 — A threat of fiscal restraint as Republicans seek to cut spending by more than agreed upon in the debt ceiling deal earlier this summer. House debate over the budget begins in the next few days, with the threat of a government shutdown looming on Oct. 1 — hardly a positive for consumer confidence.
Headwind 4 — The relentless, unprecedented heat wave that is now spreading to the Midwest and the East, which will keep many people indoors and drive utility bills higher, another drag on disposable income.
Headwind 5 — The Fed itself, at risk of overdoing the restraint even though inflation has dropped significantly. The Fed will stick with its 2% CPI target, but does it have to get there right away? Still more rate hikes after this week’s move would intensify criticism from Congress that the Fed is risking a recession by raising rates after inflation has peaked.
BOTTOM LINE: The economy continues to grow and inflation has not been totally subdued, so it’s extremely unlikely that the Fed will consider rate cuts until 2024. But the argument for more rate hikes is fading as the headwinds give the Fed a reason to pause after tomorrow.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2023 AGF Management Limited. All rights reserved.