Currently, the primary determinant of what’s ahead for markets and the economy is driven by FED policy on interest rates. How come?

As we’ve previously discussed, raising or reducing interest rates is the primary means for The FED to change the level of inflation of our economy.

And right now, inflation is a big problem.

Several months ago, I shared my thoughts with Panos Mourdoukoutas from International Business Times on rising interest rates and recession.

So where are we now?

The FED has raised interest rates aggressively, to a point where they are already meaningfully higher than just before covid.

In other words, the pre-covid economic tailwind we were getting from The FED is gone.

At the same time, interest rates have yet to reach their peak level as inflation remains elevated, and this week, worryingly, the unemployment rate hit a 53-year low.

Why is record-low unemployment bad?

At this point, inflation has become sticky because it has become embedded into wages, which almost never decrease, even during a recession.

So, to fix this, the FED needs to cause the unemployment rate to rise in order to slow wage inflation, and that means a recession may be necessary in order to get inflation under control.

Keep in mind that investment markets are forward looking, so current market pricing already reflects what people expect to happen.

What people are still trying to wrap their head around is whether this results in a recession or not, most likely sometime during 2023 if it does occur.

Read the full article on International Business Times.

This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.