Searching for the Goldilocks Economy

Provided by Marc Aarons

Last week, the Federal Reserve took an aggressive stance toward inflation by raising the key interest rate by three-quarters of a percentage point.  A move unseen since 1994.

With consumer prices soaring, pushing short-term rates higher is the Fed’s attempt to slow economic growth and rein in inflation, all while attempting to avoid a recession. Fed Chair Powell said that he expects rates to go up again at the July meeting and indicated that the Fed would take future decisions as they come.

Upon the news, investors initially seemed cheerful, but stock prices soon fell as the reality emerged that interest rates would continue to rise.

But it’s a tricky proposition.

Raise rates too much, and you may trigger a recession. Don’t raise rates enough, and you won’t be able to restore price stability. The Fed is looking for a Goldilocks moment when its monetary policy is “just right” to create a soft landing for the economy.

You may not have noticed, but early evidence shows inflation is starting to slow. I’m confident the Fed sees it, too. However, most people judge inflation by prices at the gas station and the grocery store, so inflation is genuine and painful until those prices trend lower.

But I remain an optimist. History shows that economies and markets move in cycles, so I believe the current trend is healthy in the long term. I also think smart economists at the Fed are making difficult decisions following an extraordinary couple of years.

In times like this, it’s good to remember that volatile markets should be considered when designing your financial strategy.

I’m excited for the second half of 2022 and expect things will look pretty different by year’s end. Meanwhile, I’m always on hand to answer your questions.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com.

ocmoneymanagers.com

MMI Disclosure: This material was prepared by MarketingPro, Inc., for use by Marc Aarons and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.