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Here’s what you need to know today…

1. Policymakers finally stopped raising interest rates.

2. The US economy is doing better than policymakers expected.

3. Costs are starting to fall for businesses.

S&P 500: 4,372.59
1Mo: +6% | 1Yr: +15% | 5Yr: +57%

The market didn't move much today despite some anxiety around the Federal Reserve's policy announcement that turned out roughly as expected. [🤓]

The Fed has stopped raising interest rates (for now) but warned that it could hike baseline rates again by 0.5% at some point this year if inflation doesn’t keep falling. The Fed has raised interest rates by 5% in a little more than a year, the most extreme policy move in decades aimed at restricting the economy. So far, it looks like it has been effective at slowing business activity enough to stop the breakneck surge in prices of everything from homes to eggs and cars.

The Federal Reserve thinks the economy is doing better than expected. Policymakers more than doubled their economic growth projection for 2023 from 0.4% to 1% and lowered their year-end projected unemployment rate from 4.5% to 4.1%. That’s not far from the current unemployment rate of 3.7%, which is near historic lows.

Businesses are finally getting a break from inflation. The Labor Department’s Producer Price Index declined 0.3% in May, driven by a steep drop in fuel prices. Wholesale costs are only 1.1% higher than a year ago.

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Federal Reserve

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but had been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to get living costs under control without sparking mass unemployment.

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