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...Historically, it has taken 12 to 18 months for the full impact of rising interest rates to be felt by the economy. Also, while unemployment remains low and wages are high, inflation is still much higher than the Fed prefers. The CPI index stood at 3.0% annual growth as of the last release in June, and when one factors out food and energy, inflation is growing at an annual rate of 4.8% annually³. This is certainly below the peak we reached in June 2022, but we are still a long way from the 2.0% inflation target that is sought after by the Fed. Energy remains an important component for the economy both in terms of direct consumer demand and as an input for industrial production. At the end of June, crude oil was trading at $70.78 per barrel based on the September 2023 futures contract⁴. As I write this essay on August 7^th, crude closed today at $82.82 per barrel on the same September futures contract. This represents a price increase of 16.5% in 38 days. We are starting to see prices creep up at the pump and higher energy prices will find their way into the CPI index. The point is that inflation is not dead yet and, in my opinion, the more serious Federal Reserve voting members still have further rate hikes on their minds.

The reason we believe that Fed hikes are not off the table is because…

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