In a televised interview earlier today, New York Fed President John Williams stated the Federal Reserve will continue to “do what’s necessary” in order to bring inflation in line with the central bank’s goal. The Fed has a 2% inflation target, and with the annual rate of inflation at 7.1%, there is clearly a long way to go. While the Federal Reserve raised rates by a more modest 50 basis points earlier this week, questions and fears still remain about the future path of rate hikes in 2023. Many economists and business leaders are predicting that the U.S. economy would enter a recession next year. That leaves investors concerned that the Fed might not be able to pull off a “soft landing”— in other words, a monetary slowdown that lowers inflation without tipping the economy into a recession. Next week we’ll get another indicator of how inflation is doing when the Personal Consumption Expenditures (PCE) Price Index is released. It’s the Fed’s preferred gauge of inflation and could provide a glimpse into how stubbornly high inflation is holding on. If inflation slows more than expected, investors will likely breathe a sigh of relief thinking maybe the central bank will take it a little easier on all of us next year. Stocks are falling today as investors continue to worry about the future of the U.S. economy after yesterday’s retail sales report showed a bigger-than-expected slide in spending.
