Our view is that the Fed will raise the Fed Funds Rate by 100 basis points when it holds its FOMC meeting on July 26th and 27th. Today’s CPI print of 9.1% creates significant political and economic pressure for the Fed to become increasingly aggressive in its approach to taming inflation.
- The Fed is behind the curve: The Fed is way behind the inflation curve and the risk of inflation spiraling out-of-control is real given the Fed’s molasses-like approach to taming inflation.
- Negative real yields: The 2-year Treasury yield sits at 3% which means a real yield of approximately negative 6%. A real yield of negative 6% means the Fed’s work has only begun. The Fed must become more aggressive in its approach to taming inflation. We expect the Fed to increase the Fed Funds Rate by 100 basis points later this month as we wrote earlier this week.
- Persistent inflation: We believe it is unlikely that the CPI will fall below 6% this calendar year. It is too early to discuss peak inflation and rate cuts (see our recent article about former Fed Chair Arthur Burns who prematurely stopped tightening during the inflation-ridden 1970’s).
See the Fed’s FOMC calendar HERE.