After a barely positive May, June saw the bear market return across indices. We ended up with the worst first half performance since 1970. A mid-month surprise 75 basis point rate hike at the June FOMC meeting, followed by Fed Chairman Powell’s testimony to Congress in which he indicated aggressive rate increases at the July and September meetings, convinced markets that inflation is the priority for the Fed.
Chairman Powell indicated that the current level of inflation – a historic 8.6% – will require a short-term rate of at least 3% to get to a neutral level. With the Fed funds rate currently at 1.50%-1.75%, that means several more rate increases this year.
Are we headed for a recession? Are we already there? Or is the Fed’s plan to slow the economy and bring the labor markets into balance beginning to work?
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