Changing its tune Changing its tune\images\insights\article\mmdt-weekly-Small.jpg July 31 2023 July 31 2023

Changing its tune

Weekly Bond Commentary

Published July 31 2023

What recession?

Economic data released last week painted a more upbeat picture of the U.S. economy, endorsed by no less than the Federal Reserve. The Fed met last week, and as expected, raised its federal funds rate by 25 basis points to a target range of 5.25-5.50%. But probably more importantly, Chair Powell said the staff is no longer forecasting a recession. Policymakers may still raise rates—perhaps as soon as the September meeting—but that will depend on how strong the economic data is in the interim. 

The Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE) deflator, continued, well, to deflate. The index's year-over-year rate fell from 3.8% in May to 3% in June, and the core rate fell from 4.6% to 4.1%. Both are still above the Fed’s 2% target, but they have fallen sharply over the last year. Consumer confidence remains strong, no doubt helped by the continued strong labor market. Though gasoline prices have edged higher in July, at $3.71/gallon, they are still well below the $4.06/gallon average in 2022. 

All things considered, consumers seem to be faring pretty well in this environment, leaving the hot weather as the main focus of criticism. 

Tags Markets/Economy . Interest Rates .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Personal Consumption Expenditures Price Index (PCE): A measure of inflation at the consumer level.

Federated Investment Counseling