The Federal Reserve is in an interesting position as we move through the second quarter of 2024. Last December, they caught investors off guard by saying they were finished raising interest rates and their next move was to lower the federal funds rate. Even though headline and core inflation remained higher than their stated targets that they reiterated throughout 2022 and most of 2023. Service and grocery store prices remain higher than where they were a couple of years ago. Few of us want to remember the true reason we have wrestled with higher costs.
Inflation is a function of monetary policy. When you remove supply and increase demand through printing more money, prices have only one direction to go, and that is up. For some reason, the Fed wants to cut the federal funds rate even though input costs remain elevated and with government spending going up, it is hard to see how inflation moves lower unless supply is increased from current levels but that is a different conversation.
Over time stocks have delivered better returns than bonds during periods of higher inflation. It appears the bull market in bonds from 1980-202(41 years) is over and that is not a terrible thing.
Cheers.
Lawson Winchester Wealth Management
The views expressed are not necessarily the opinion of Cadaret Grant, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.