"What news from the Feddermark!?"
What does the Fed's stance really mean?
The Fed announced today(June 12, 2024) that rates are going to remain steady. This has been the stance for several consecutive meetings. They haven’t changed the rate since the July 2023 meeting. They also said they anticipate only one rate cut this year, compared to the estimated 3 cuts predicted earlier this year. They further estimate 4 rate cuts in 2025.
You’ll see information like this all over the news in the coming days, but what exactly does that mean in plain English? What is the bigger picture?
Simply put: if the Fed raises rates, it means inflation is too high. If they lower rates, it means inflation is too low or steady enough. If the Fed keeps rates steady, it either means that the data they look at is either not quite where they want it to be, or the data looks good and they hope to keep it that way. For our discussion today, their decision is a result of the data not being quite where they want it to be. The “data” means inflation and unemployment numbers. Today’s meeting was more about inflation numbers than anything else.
As you probably know, inflation has been high for the last couple of years. It peaked at almost 10% in July 2022. The Fed has been raising rates with the goal of bringing the inflation rate down to 2%. The latest numbers indicate we are at 2.8%, which is higher than the goal of 2%. News outlets love to report on this by saying the current rate isn’t anywhere near its peak, which is true, but it is still higher than where it should be and what we had grown accustomed to prior to the Biden administration. Since inflation is still too high, the Fed didn’t touch the rate.
Are you with me so far? If not, I’ll explain it another way that is as plain as I know how to say it:
Our economy is not doing as well as we’re being told it is.
Prices are still going up faster than wages, and people are hurting out there. Do yourself a favor and don’t believe a word of what any government official is telling you about our “booming economy.” They can spin it in such a way that it’s not lying, but it still isn’t true. Just one example I can share is that whenever you hear about all the job growth that is happening, they like to leave out the part about all those jobs being lost in 2020 related to our government response to COVID. So, in reality, we’re still trying to catch up to where we were in the first place. In one sense, the message is true, but when you’re looking at what’s in front of you, it’s a lie. Listen to someone who has no political interest but rather they simply rely on what is factual and real(like me). If the economy was doing as well as we’re being told, rates would have already dropped, and would continue to drop. The fact that nothing has changed halfway into the year tells you everything you need to know. Once rates actually DO drop, then you’ll know our economy is really doing better and it isn’t all fluff.