(4/11/23) Lots of Fed speakers are on deck this week, along with data releases with the latest measure of inflation: Will numbers indicate a weakening sufficient to cause the Fed to pause rate hikes? Markets continue to do well; why we trimmed out positions in the NASDAQ; Why did PC sales take a dive? Markets may be a bit ahead of reality. Why a lack of bullishness in the markets is a good thing; markets returns expectations vs reality; avoiding market downturns is more important than making market gains; we do the math. The Dalbar Survey: Why most American’s aren’t saving money. Avoiding Bad Financial Mistakes; how parents enable instead of help their children. Survey: When should children pay their own way?
3:07 – Will Inflation Be Weak Enough to Cause a Fed Pause?
14:31 – What Markets Are Doing vs What We Think Markets Should Do
30:26 – Avoiding Market Downturns is More Important Than Making Market Gains
44:31 – Bad Financial Mistakes (And How to Avoid Them)
Hosted by RIA Advisors Chief Investment Strategist Lance Roberts, CIO
Produced by Brent Clanton, Executive Producer
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The latest installment of our new feature, Before the Bell | “Is it Time to Trim NASDAQ Exposure?” is here:

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Here is an article mentioned in today’s show: “Bullishness Remains Missing, Which Is A Good Thing:”

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Our previous show is here: “What a Fed Rate Cut Would Really Mean”
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Will Inflation Weaken Enough to Cause a Fed Pause?

Inflation has been a widespread concern for central banks around the world, and the US Federal Reserve is no exception. Rising prices can have detrimental effects on the economy, eroding purchasing power and impacting consumers’ ability to make ends meet. As a result, the Federal Reserve closely monitors inflation levels and takes necessary actions when it deems fit.

For several months, the US has been experiencing a surge in inflation, driven by several factors including supply chain disruptions, pent-up consumer demand, and government stimulus measures. The Consumer Price Index (CPI), a commonly used measure of inflation, has shown consecutive months of remarkable growth, raising concerns among investors, policymakers, and ordinary citizens.

In response to the rising inflation, the Federal Reserve has adopted a wait-and-see approach, maintaining its accommodative monetary policy stance and refraining from immediate rate hikes. However, as inflationary pressures continue to build up, questions arise about whether the Federal Reserve will eventually have to tighten its policies to curb excessive price increases.

This brings us to the question: will inflation weaken enough to cause a Fed pause? There are several factors that contribute to the uncertainty surrounding this issue. First and foremost, the nature of inflation is continually evolving, making accurate predictions difficult. Economic models may not always capture the complexity of real-world dynamics, rendering forecasts less reliable.

Secondly, the driving factors behind recent inflationary pressures are largely transitory in nature. Supply chain disruptions caused by the pandemic, such as the shortage of semiconductors and global shipping delays, have led to a supply-demand mismatch, pushing prices higher. As these supply chain disruptions are resolved and the global economy returns to a more normal state, inflationary pressures may alleviate naturally, reducing the need for aggressive policy actions by the Federal Reserve.

Furthermore, the Federal Reserve has made it clear that it considers the current surge in inflation as temporary. The central bank expects that as the effects of various temporary factors wane, inflation will gradually return to its target range of around 2%. This forward-looking outlook implies that the Federal Reserve may not feel compelled to pause its policies unless inflation becomes more persistent and poses a sustained threat to price stability.

However, there are risks to this outlook. If inflation proves to be more sticky than expected and persists longer than anticipated, it could prompt the Federal Reserve to reconsider its stance. In such a scenario, the central bank may need to adopt a more proactive approach and adjust its policies accordingly. This could manifest in earlier-than-expected interest rate hikes or a reduction in asset purchases, signaling a tighter monetary policy to control inflation.

Ultimately, the trajectory of inflation and its impact on the Federal Reserve’s policy decisions remains uncertain. While the central bank is committed to maintaining price stability and promoting maximum employment, it is also cautious about not prematurely withdrawing support for the recovering economy. As such, the Federal Reserve will continue to closely monitor inflation indicators and adjust its policies as required to strike the right balance.

In conclusion, whether inflation will weaken enough to cause a Fed pause is a question that cannot be definitively answered at present. The path of inflation will depend on various factors, including the resolution of supply chain disruptions and the persistence of inflationary pressures. The Federal Reserve will closely evaluate these developments and make decisions that best align with its mandate of ensuring price stability and supporting economic growth.