In consecutive meetings now, The Federal Reserve has raised rates 0.75 to help stave off inflation that has reached 9 percent, the highest in decades.
However, atop its report was a hint toward an increasingly positive outlook on the other economic pressures that historically have pushed inflation.
“Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed stated in a news release.
The Fed’s goal is the guide the economy back down to a standard 2 percent inflationary rate.
“That starts with economic activity… that we need. Of course we’ll be looking at labor market conditions,” Federal Reserve Chairman Jerome Powell said in media and analyst Q&A following the close of the two-day meeting. “Do we see inflationary pressures declining.
“We will make decisions on a meeting-by-meeting basis,” he said.
Powell said a moderate slow-down of the economy is necessary in order to restore price stability that will positively influence long-term hiring and investment. He said the economy is not in a recession, even if recent GDP numbers show a month-to-month decrease. Employment and wages remain strong, for instance, and the latest numbers on orders for durable goods beat expectations of 0.04 percent to achieve 1.9 percent. Those June orders were up 10.9 percent from a year ago, while orders excluding transportation are up 7.2 percent.
“It doesn’t make sense the U.S. economy is in recession right now with these kinds of things happening,” he said.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of their goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and expectations, and financial and international developments.
Brian Wesbury, chief economist with First Trust Financial, had this to say following the Fed increase and news on a 0.9 percent dip in GDP.
“Stagflation, yes, official recession, not yet. We understand that people think (and some feel) that this is a recession, but the first half of the year included payrolls growing 457,000 per month, lower unemployment, and industrial production up at 5.0%+ annual rate,” Wesbury stated in a post to newsletter subscribers. “These things don’t happen during recessions and we would not be surprised if at least one of the first two quarters of the year is later revised positive.”
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