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The Federal Reserve’s Inflation Expectation

Welcome to the first installment of “Economic Track with Zac”. Federal Reserve chairman Jerome Powell spoke yesterday about the state of the economy. The overall message Powell conveyed was one of longer-term optimism and shorter-term uncertainty. This was particularly true with respect to inflation. The Fed has remained consistent with the idea that the current rise in inflation is transitory in nature and will fall to more acceptable levels longer-term. The Fed believes the reason for the inflationary spike is supply-side constraints due to a flat-footed reopening in many industries. Many deflationary pressures, mainly the elevated unemployment rate, remain at large and reflect the Fed’s prediction of transitory inflation. With all this mind, Powell noted the Fed is hesitant to raise interest rates to fight inflationary pressures. He believes that raising rates could curb the much-needed economic recovery we are currently seeing. With short term uncertainty in the economy and hence, in the markets, the Investment Management Team has been taking gains off the table and freeing up cash to be buyers if the market sees a downside correction. For more information and updates, please see our weekly blog posts every Wednesday afternoon.

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