With trade concerns moving and shaking the markets the past few weeks, it was the Federal Reserve’s turn to dance after the latest data regarding core inflation reached their 2 percent target–the first time since April 2012. What could be their latest move?
The answer is more than likely to keep on its path of raising U.S. interest rates.
It’s the common sentiment echoed by market experts, but to some, it’s the wrong move.
“They’re going to likely continue to raise rates and lower the balance sheet,” said Joe LaVorgna, chief economist for the Americas at Natixis. “That seems to be their M.O., which is a mistake.”
Related: Sizing up the Current State of the U.S. Economy
The data substantiates more interest rate hikes, particularly when the Fed raised the federal funds rate by 25 basis points mid-June–Fed Chairman Jerome Powell cited a lower unemployment rate coupled with inflation projections hitting their mark.
“With unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong,” Powell said.
However, with a flattening Treasury yield curve that could invert–a precautionary sign that preceded the last two recessions, LaVorgna thinks the Fed’s next move should be the shuffle back (of rates) rather than the raise.
“If the Fed goes two more times this year … the yield curve inverts, certainly by early Q4,” said LaVorgna. “If that’s the case, you want to be on the lookout for recession as early as Q4 of 2019.”
Related: Central Banks Weigh In on Global Economy
Consumer Sentiment Weaker, Fear Higher
The latest trade concerns may be weighing on the minds of consumers as sentiment was up just 0.2 percent from the previous month. Historically, sentiment remains high with the low unemployment rate and rising incomes, but the impact of the tariff battle between the United States, China and European Union is hampering CNNMoney’s Fear & Greed Index.