July 2023: Debt Ceiling Crisis Averted… Now Back to Inflation and Interest Rates

Washington lawmakers resolved the debt crisis with plenty of drama, pleasing investors to only focus back on inflation and interest rates.

Investors remain very sensitive to every decision and statement by the Fed.  In June 2023 the Federal Open Market Committee “FOMC” of the Federal Reserve issued its periodic forecast of the most important economic indicators that influence our economy and interest rate policy.  The FOMC has been clear that it expects to raise interest rates by another .50%, in two .25% moves in the coming months.  I find it interesting that the market periodically declines when FED Chairman Powell states that interest rates may need to be increased to address inflation, even though the FOMC has already indicated these increases.

Inflation is on a clear downward trend with the consumer Price Index “CPI” at 4%, down from its 9% peak.

Shelter cost represents 30% of the CPI and is finally declining.  Excluding shelter costs, CPI is at 0.8% well below the FED’s 2% target.  So, as shelter costs continue to decline (and not rise anymore) we expect CPI will continue to decline. I expect CPI will be down to the 3% level by the end of 2023.  If my expectation unfolds that inflation will continue to decline, I expect the FED may not need to raise interest rates higher than it has previously announced i.e. another 0.5%.  There remains the possibility that the Fed may decide to not increase interest rates at all depending upon the trajectory of inflation.  This would be a definite positive surprise to investors.

The current cycle of declining inflation by more that five percentage points is the sixth time since WWII.

The stock market, on average, rose 19.2% during the ensuing 12 months after such CPI declines.

Rich Lawrence July 3, 2023

As always – We recommend only investing in the stock market with a long-term view (3+ years) and having cash available for emergencies and spending needs for the short term 2-4 years.


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