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The Federal Reserve is winning the battle against high inflation, but the fight is not over yet, a parade of senior bank officials told Wall Street this week. Why the stern lecture? Fed insiders appear to have been taken by surprise by a big market rally after the central bank left a key short-term interest rate unchanged last week. Stocks jumped to a record high and long-term rates fell sharply.
Giddy investors viewed the Fed decision and encouraging words from its chair, Jerome Powell, as a sign the central bank would begin to cut interest rates starting in March as inflation continued to slow. Fed officials, on the other hand, insist it’s premature to declare victory or to begin to plot the first rate cut. The reason: Inflation has proven to be sticky in major parts of the economy. There’s a lingering worry at the Fed that it might not slow as quickly as Wall Street expects. The biggest area of concern is the cost of services, which has not slowed as much as the price of goods such as furniture, appliances and consumer electronics.
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