048: A Close Look at the Federal Reserve's Unexpected Monetary Shifts

Megan analyzes the latest Federal Reserve meeting, where decisions were made that could change the face of the financial landscape. The Federal Reserve had a surprising hawkish stance, a move that was unexpected by the market. Megan illuminates how rampant inflation and escalating energy prices can influence this monetary policy shift, and what that could mean for the economy. 

Megan reviews the numbers behind the Federal Reserve's projections - projected GDP growth, inflation target rates, and a potential increase in the Fed funds rate for the next year. She provides valuable insights into these numbers and their implications, setting the stage for an expanded discussion on the future of interest rates. Megan points out the subtleties of these higher interest rates and the potential for further rate hikes. If you have questions or wish to discuss further, feel free to reach out to us at podcast at verdence.com

Hello, this is Megan Horneman, the Chief Investment Verdence Capital Advisors, coming to you today with our regular segment of Markets with Megan talking about the FOMC meeting. So the Federal Reserve met this week and they, as expected, kept interest rates unchanged. However, their tone and then their future projections for interest rates were a bit surprising to the market and a little bit more hawkish than the market had anticipated. If you've listened to any of our other podcasts, we've been warning about this that the Fed couldn't take their foot off the gas, because inflation is very easy to reignite. The concern right now is that energy prices are going to cause a lot of volatility in inflation data going forward.

So let's just dig in a little bit to the numbers. What they saw was an increase in their expectation for GDP this year and next year. However, next year is only supposed to be about 1.5% for the full year the inflation numbers. We're waiting for them to get to their target rate. They're not expected to reach their target rate until 2026. Now we don't think it's going to take that long before they cut rates, but inflation is still going to be elevated this year and still above their target rate next year. The other thing that surprised the market was that the expectation for the Fed funds rate for next year. They were originally anticipated at 4.6%, which meant several interest rate cuts next year. Now the expectation is for 5.1%. So the main story here is interest rates are higher for longer the Fed may not be done. There may be another rate hike this year before they then stay on pause for a long period of time. That's all we have today. If you have any questions, please feel free to reach out to podcast verdence. com.