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Inflation Done, Fed Looms: What to Expect From Today's Interest Rate Decision

By Investing.com (Francesco Casarella)Market OverviewJun 14, 2023 08:02AM ET
www.investing.com/analysis/inflation-done-fed-looms-what-to-expect-from-todays-interest-rate-decision-200639013
Inflation Done, Fed Looms: What to Expect From Today's Interest Rate Decision
By Investing.com (Francesco Casarella)   |  Jun 14, 2023 08:02AM ET
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  • Markets rallied as inflation continued to decline
  • Fed is expected to pause today and hike in July
  • CPI could drop in July because of the base effect, and it makes more sense for Fed to raise now and pause later

As expected, inflation showed no surprises, and as I predicted earlier, the base effect once again contributed to the decline in the headline CPI (+4.9% previous survey, +0.1% monthly change, -1% base effect = 4% total).

Naturally, markets rallied as S&P 500 broke above 4300. However, today's focus is on the Federal Reserve. Since March 2022, Powell has consistently raised rates.

So, what can we anticipate from this meeting?

Fed Rate Monitor Tool
Fed Rate Monitor Tool

Source: Investing.com

Investing.com's Fed Monitor Tool indicates a 93% probability of a pause. So it seems that markets are pricing that in as an almost certain outcome, since inflation is continuing to fall.

It's worth noting that the Shelter component of the CPI, which makes up approximately one-third of the total, has seen a decrease for two months in a row. This is a positive sign for July.

U.S. Rents Vs. Shelter
U.S. Rents Vs. Shelter

And, thanks to the base effect next month, which will be 1.3%, we should have a CPI of 2.9%. (+4% (last figure) +0.2% (assumption of the monthly change in July) - 1.3% = 2.9%)

Surprisingly, in July, we may witness a CPI that is even below 3%, edging closer to the Fed's target of around 2%.

So at this point, I'm going to go against the trend and ask you: Why are numerous media outlets and analysts suggesting a halt in June followed by a 0.25% hike in July when the CPI is expected to continue heading lower?

Doesn't it make more sense to raise now and then pause in July?

In this situation, it will be fascinating to see the market's reaction tonight, regardless of the Fed's decision. It's advisable to wait for the entire week to get a clear picture.

However, the assets that need to be monitored won't be the stock markets but:

An Intermarket analysis will help us see the situation more clearly. The markets have been going up, and if you remember, I am one of the few who has been optimistic in my previous analyses.

Going against the crowd can be tough emotionally, and we may see some significant declines along the way. But as long-term investors, we don't have any other choice if we want to be successful in the end.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remain with the investor. The author does not own the stocks mentioned in the analysis.

Inflation Done, Fed Looms: What to Expect From Today's Interest Rate Decision
 

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Inflation Done, Fed Looms: What to Expect From Today's Interest Rate Decision

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Comments (19)
Jayne Doe
Jayne Doe Jun 15, 2023 3:57PM ET
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I wonder if I could follow that A with a B. lol
Shep De
Shep De Jun 14, 2023 2:48PM ET
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5.1% to 5.6% projected inflation this year, this theory is crumbled
Shep De
Shep De Jun 14, 2023 2:48PM ET
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*projected rate hikes
Jack Peterson
Jack Peterson Jun 14, 2023 2:07PM ET
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That’s funny, inflation done… what a farce
Peter Chau
Peter Chau Jun 14, 2023 12:47PM ET
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Market manipulation by FED - screwing average joe - paying credit card interest are the victims
Bob Bob
Bob Bob Jun 14, 2023 12:40PM ET
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Nonsense, why do people believe government numbers? According to The Brookings Institution and Price waterhouse Coopers inflation is 2 to 3 times higher than they are reporting. Healthcare costs alone are 7.6%, not 2.6% in their report.
First Last
First Last Jun 14, 2023 12:40PM ET
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You have a link?
sam ss
sam ss Jun 14, 2023 12:33PM ET
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I agree! He can always cut the rates if inflation cools down.
gary leibowitz
gary leibowitz Jun 14, 2023 11:07AM ET
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We went from addicted to disinflation causing a slight trillion dollar mistake to one convinced inflation is already dead and we can LOWER rates soon.  Earnings depend on it.  All asset classes are extremely bloated if you assume inflation is here to stay.  Not just high but default high.  WAGES and consumers activity in next few months will tell us which way we go. WAGES, my expectation is for a huge rise going forward sealing our fate on inflation.  I "saw" the banking debacle not 2 weeks before it occurred just on the fast rise in rates and the ability for humans to stay addicted to disinflation and bet accordingly.
gary leibowitz
gary leibowitz Jun 14, 2023 11:07AM ET
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AT 2 PM a shocker!!!!  FED plans on raising rates TWO MORE TIMES this year and no chance of cuts till next?  Inflation is not something that can go away on it's own ONCE long term tight labor and wages take hold.  Watch the wage component.  if we had as many UNION jobs as we did in the 80's we would already be hyperinflation. As it is we will experience more pain and more DEFAULTS as a result.  The FED sees what the street doesn't want to see. MAJOR tuning point right here and now!
Casador Del Oso
Casador Del Oso Jun 14, 2023 10:12AM ET
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Excellent article. Why would the FED skip then hike instead of hike then pause? Inflation is still more than double the FEDs target.
dar dar
dar dar Jun 14, 2023 9:26AM ET
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another theatrical production it's wonderful tax receipts of 4 trillion and spending of six trillion The greatest show on Earth aka the circus
Mike Wellons
Mike Wellons Jun 14, 2023 9:21AM ET
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CPI doesn't change as a result of a Fed increase/decrease, it changes as a result of the actual level of Fed Funds Rate ... 5%. So no, further increase is not needed, its already exceedingly high and the Fed will overshoot once again .. will they never learn? July CPI 2.9-3.0% and the author is advocating increasing the 5% rate higher at this meeting? What?!
Ron Lo
Ron Lo Jun 14, 2023 9:21AM ET
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Fed needs to raise more. inflation is still twice their target
First Last
First Last Jun 14, 2023 9:21AM ET
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Ron Lo   Fed funds rate is much closer to inflation rate than it was a year ago.
 
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