This week, the Federal Reserve unanimously agreed to raise short-term interest rates by 0.25%. This was expected, as current inflation measures remain higher than the Fed’s target. Without question, the ongoing conflict with Iran is a major contributor to persistent inflation.
Crude oil prices recently moved to their highest level since May, at more than $100/barrel. Higher energy costs affect every step in the supply chain and may weigh on earnings expectations for some businesses, particularly retailers.
Inflation has had a meaningful effect on the bond market. Chris and Sam from Commonwealth discuss the issues here, including rising energy prices and strong economic growth. The bond market is reflecting the very uncertain duration of the war and the Fed’s move is reflected in the recent increase in yields.
This means we may expect the Fed to be more attentive to incoming inflation and economic data. As Chris says, “Don’t fight the Fed.”
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As investors, we are much less concerned with month-to-month Fed rate decisions and more focused on the actual performance of the companies we are invested in.
Markets (and market watchers) spend a lot of time reacting to forecasts about inflation, interest rates, and Federal Reserve policy. While those factors certainly matter, long-term investment results are ultimately driven by business fundamentals.
Many of those economic fundamentals continue to be very strong. While inflation absolutely has an impact on company performance, current pressures do not seem severe enough to derail continued economic growth.
Let the headlines focus on the “Will they, or won’t they?” of the Fed. We remain focused on our long-term goals and the disciplined steps required to achieve them.
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Here are some other things that caught our attention:
- The Girl Scouts are expanding into the canine cookie business. A good business move.