Consumer Spending Still Strong

The FOMC minutes from last week gave us more information about the Federal Reserve’s thinking behind raising interest rates 75 basis points at their most recent meeting. From this release, we learned that the Fed still thinks inflation is too high and that they are focused on cooling the economy down. Markets zeroed in on a few sentences in the minutes that discussed the possibility of slowing the pace of rate hikes, interpreting that as a dovish sentiment. We will be watching what Fed Chairman Jay Powell says about that this Friday at the annual global central banking conference in Jackson Hole. We believe that Powell and other FOMC members will attempt to draw a more hawkish line this week, considering that inflation remains so far above their 2% target. Despite the central bank’s efforts, the economy is still showing signs of strength. For example, US consumer credit card spending remains strong across all areas—from clothing, sporting goods, and amusement parks to hotels, restaurants, and more. The bottom line is that the US consumer is simply not slowing down, which means that the Fed still has more work to do to cool the economy off to help lower inflation. It’s against this backdrop that we expect more rate hikes ahead, and therefore continued uncertainty in equity and credit markets.

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