Why the new bull market is headed for more Fed stress after a rate hike pause

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The Federal Reserve may pause it interest rate hikes this week, but inflation remains too high and the market should not become complacent.

" that inflation will continue to pose an issue for the Fed. "There are some signs that can be grasped of declining inflation, but it is very gradual. I think the committee still has a big challenge, particularly with a 2% target," Lockhart said, referring to the Fed's stated goal of bringing inflation back down to a target range of 2% over the longer term.

On an annual basis, the inflation rate was 4.9% in April, slightly less than the market estimate, but it remainsboth as observed in prices throughout the economy, and in the expectations of many CEOs on the record as saying inflation will persist. This upcoming week will include the latest read on the annual and monthly inflation trend with the May consumer price index report due on Tuesday, the first day of the Fed's two-day FOMC meeting.

Traders react as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen, on the floor of the New York Stock Exchange , May 3, 2023.Ongoing concern about inflation is one of the factors that leads Ferguson to see a higher possibility of a hike come Tuesday. This view is underpinned by, among other things,that continues to be tight. Wage growth has cooled, and unemployment is rising. But Ferguson cited the approximately 1.7-1.

"I think overall the picture is one of inflation and inflation pressures that are higher and stickier than the 2% number that the Fed has been aiming for. So I think it's the data that's already here that's telling us more hikes on the way," he said. Others see recent cooling the labor market as a signal the Fed may soon have more need to moderate its rate hike strategy. Wharton professor

 

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