In The Weekly Update for 7/2/2021, “A Few Key Dates” I outlined the timeline for possible interest rate increases. As noted on 7/2/2021, I have been writing in these updates that we could see inflation coming in at 6% later this year.
My concern was that the Consumer Price Index (CPI), which measures household inflation, and the Producer Price Index (PPI), which measures inflation at the manufacturing input level could be increasing more than expected.
Both came in rather “hot”.
Federal Reserve Chairman, Jerome Powell, was able to walk the markets off the cliff for now, but will he be able to do it again and again?!
The business news is suggesting the surge in new car and used car prices are causing the CPI to go up. They, like most of the time, are incorrect! Cars and trucks make up a tiny 3% of CPI! Housing makes up 33%. To date, the CPI has only increased the housing component by 2.6% - 3.2%. Compare that to the rising prices of homes, which in most parts of the country are up 20%+.
It is very realistic to expect the housing input to push the CPI up to a 9% inflation rate later this year. This could continue for two to three years into the future.
As the economy recovers, expect the inflation data to continue coming in “hot” and this will likely force the Federal Reserve to increase interest rates before the well-intentioned timeline of 2023. Think more like August 26 – 28, 2021 when the Fed holds its annual meeting in Jackson Hole, WY.
This meeting is followed by Powell making an outlook statement. It is most likely going to result in an announcement of “tapering” back on the billions the Treasury buys back in U.S. Treasury bonds every month, to keep short interest rates low.
Possible result? Another “taper tantrum” in the markets. The good news is that here at The Wealth Strategies Group we have been planning and preparing for what is next for over a year. We have a very detailed plan for our WSG family. If you don’t have a plan, call us and we will be happy to assist in crating one for your bigger financial future.
I am interested in your thoughts, comments, and observations. Feel welcome to call, email or just stop by the office and say hi!
Jim Lunney, CFP®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.