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Inflation Rises Again, What Does It Mean For Us?

April 11, 2024

As of writing this, the market is selling off due to a higher than anticipated inflation report for March. CPI came in at 3.5% higher year over year and 0.4% higher on a monthly basis. As these numbers came out investors reacted strongly and we saw the market take a hit due to this with all three indexes being down for the day. 

So, why the big reaction to sell? 

The answer comes down to what is happening with inflation and what happens to interest rates.  

The fear is that interest rates will be higher for longer and that we won’t have the same level of rate cuts that we have been anticipating from the Fed. Throughout the first quarter of the year, the Fed stayed steady on three rate cuts this year. Investors had forecasted that June would be the first rate cut we would see. So there was a ton of optimism that while the economy continues to grow, inflation would continue to come down, and interest rates would come down beginning in June. 

However, a higher inflation reading in March threatens to change that story. 

Now, investors are not anticipating a June rate cut with the certainty they were, and instead some believe we won’t see the first rate cut until September. In turn, this would mean that we may have higher interest rates for longer, something that investors don’t love to see after historically low interest rates just three years ago.

In addition to this, investors are concerned that maybe we don’t have the grip on inflation that we started to believe we had. That maybe we have some more work to do in order to get inflation down to that 2% goal the Fed put out.

So what should we think after all of this?

This is the natural cycle of things. The economy continuing to show strength is not a bad thing. And the market sell off due to this news is just people panicking over uncertainty of what the plan is now, it does not change the overall story of the economy. If anything, businesses and consumers proving that they can continue to do well even with higher interest rates is an even better story. Not that we want to see high interest rates or inflation, but it shows the resiliency that is within the economy right now. Resiliency that is great to see coming off of years where there was a massive amount of uncertainty. 

So do we want to see inflation increase? No. And do we want interest rates to be higher for longer? Also, no. However, if we are proving that we can still grow the economy even with these types of speed bumps along the way, there are some things to be confident about. 

We are still in a good spot and one month of data doesn’t change that for us.