{"id":990,"date":"2023-08-24T20:46:03","date_gmt":"2023-08-24T20:46:03","guid":{"rendered":"https:\/\/normandygroup.com\/?p=990"},"modified":"2023-08-24T20:46:03","modified_gmt":"2023-08-24T20:46:03","slug":"the-firm-update-inflation-part-2","status":"publish","type":"post","link":"https:\/\/normandygroup.com\/retirement-planning\/the-firm-update-inflation-part-2\/","title":{"rendered":"The Firm Update – Inflation Part 2"},"content":{"rendered":"

On November 15, 2021, our associate, Derek Landis, CFP\u00ae, wrote a newsletter regarding the onset of inflation in the U.S.\u00a0 At that point in time, the most recent CPI (Consumer Price Index) figure was a 6.2% year-over-year increase from October 2020 to October 2021.\u00a0 Approximately eight months later, the CPI reading surged to its peak at 9.1% in June of 2022 (see chart above(1)).\u00a0 This staggering number sent shock waves throughout the U.S. economy, as a hawkish Federal Reserve continued its efforts of quantitative tightening.\u00a0 As the Fed raises interest rates, and bond prices fall, their goal of attaining a 2% inflation target remains.\u00a0 More recently, the CPI number as of June 2023 depicts a positive downward trend.\u00a0 The aggressive actions from Federal Reserve Chairman, Jerome Powell, since last Summer, has had a beneficial effect on inflation, as prices increased 3% year-over-year from June 2022 to June 2023.\u00a0 While the June 2023 CPI 3% inflation figure is much closer to the Fed\u2019s target of 2%, the Fed is not finished with their interest rate hiking campaign.\u00a0 At the time of this writing, it\u2019s almost a foregone conclusion that there will be another rate hike at the end of July.\u00a0 However, when the Fed meets again in September, they may pause raising rates, but nothing is inscribed in stone.\u00a0 The Federal Reserve\u2019s future decisions will be data driven, as they monitor inflation.<\/p>\n

The Federal Reserve will monitor the Consumer Price Index to determine the rate of change in inflation, but they prefer to take a closer look at core inflation figures.\u00a0 Core inflation measures the change in costs of goods and services excluding the costs of food and energy.\u00a0 Food and energy costs are not included because these prices are more volatile and can excessively skew inflation readings.\u00a0 Food and energy expenses are viewed as staples, meaning that as prices increase, the demand for food and energy does not change.\u00a0 Removing these sectors from the calculation yields core inflation, which the Fed believes is a more accurate portrayal of inflation within our economic system.\u00a0 The most recent year-over-year core inflation figure is 4.8% as of June 2023.\u00a0 Again, this is more than twice the Fed\u2019s goal of 2%.\u00a0 We can expect to see interest rates at current or higher levels until core inflation decreases further.<\/p>\n

In 2022, the Federal Reserve\u2019s actions not only impacted inflation, but their actions dramatically halted the growth of the domestic stock and bond markets. \u00a0We noted in our recent performance letter that last year, in 2022, the Bloomberg Barclays US Aggregate Bond Index, had its worst performance since its inception in 1972.\u00a0 Further, the tech-heavy Nasdaq and the S&P 500 suffered their worst performance year since the Great Recession of 2008.\u00a0 These results were heavily influenced by the decisions of the Federal Reserve as they set the brakes on an economy in a red-hot inflationary environment. Regardless of whether one believes Federal Reserve intervention is necessary, their decisions, including their rhetoric around their decision making, has a direct impact.<\/p>\n

So, where do we go from here?\u00a0 The Normandy Team is always ready to help with your financial planning needs.\u00a0 Please reach out to us to schedule a review of your plan and financial goals.\u00a0 Remember, it is always important to update us with any major life changes.\u00a0 We are here to be of service.\u00a0 Thank you for your continued confidence and trust over the years.<\/p>\n

Best regards,<\/p>\n

Charley Partheymuller, CFP\u00ae<\/p>\n

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