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06.14.2024 by David M. Smith

A Surprisingly Lower CPI Report Should Help the Fed Lower Rates Later This Year

After many months where inflation remained stubbornly range-bound higher than expected (or wanted), a lower inflation report came in this week.  The Consumer Price Index (CPI) for May for all items remained unchanged, meaning it came in at ZERO with no rise in inflation.  The Index minus volatile food and energy came in at 0.2%, which was the lowest reading since last JulyIf you look at the chart below, the highlighted section shows the increases since the start of the year and how much lower May’s numbers were.  May’s inflation came in much lower than expected and was a relief to market analysts who had been baffled by the recent higher numbers.  This also was what the Federal Reserve needed to see in order to start considering short-term rate cuts.  The markets reacted well to the news with both stocks rising and bond yields falling.  Bureau of Labor Statistics   CNBC   

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Chart:  Bureau of Labor Statistics (along with my handy dandy highlighting!) 

 Fed Comments:  It just so happens that the Federal Reserve rate-setting committee met the same day the CPI numbers were released.  They kept rates steady, which was expected.  In his comments after the meeting, Jerome Powell, the Fed Chair, stated that the inflation report was very good but more will be needed as their monetary decisions will be data-dependent.  Still, this week’s inflation report will probably get high marks from committee members.  WSJ    WSJ   

The Fed Dot Plot:  After the meeting this week, the Fed rate-setting committee released their projections for short-term rates by the end of the year and upcoming years.  As a committee, they think the committee will cut rates once by year-end and then cut approximately 3-4 times next year.  Longer-term they feel the short-term rate will settle between 2.5% - 3.25% (see chart below).  Federal Reserve   

How Strong is the Economy?  So, if inflation is starting to cool, does that mean the economy is cooling?  I would argue yes, and no.  Yes, it is cooling from the very hot economy of a couple of years ago, but not cooling so much that it is a soft economy.  The most recent reading from the Atlanta GDP Now forecast has Q2 GDP growing by 3.1%.  The index can be volatile, but still, it is currently showing very solid economic growth.  Atlanta GDP Now   

Financial Planning/Investment Strategy Corner

Homeowner Insurance Pain:  For many homeowners across the country, insurance has become much more expensive.  Insurance premiums were up 11.3% nationwide in the last year, but increases have been much higher in certain areas.  And in some states, rates have quadrupled over the last handful of years.  The reason for the increases is that there have recently been more violent storms and large insurable events and the insurance companies are taking big losses.  And it’s not just in California and Florida, it’s the midwestern and southeastern states too.  In an analysis by the New York Times, data showed that homeowners insurance was unprofitable in 18 states last year, up from eight in 2013.  And in many profitable states, the profit has become less and less over the years.  Therefore, insurance companies are raising premiums to offset losses and potential future losses.  The NYT article has a calculator showing data by each state.  I know many of you may not have a subscription, but when I look at states like FL, TX, CA, IL, and Iowa, the losses are enormous.  Investors will have to plan for much higher home insurance costs and higher inflation for future premiums so retirement plans are not impacted.  If you have questions about how your insurance costs are accounted for in your future financial projections, please reach out to your financial advisor.  CBS News   NYT – Home Insurance Crunch:  See What’s Happening in Your State  

What is Form 5498?  If you made a contribution to your IRA accounts for 2023 you may have recently received a Form 5498.  This form acknowledges that you contributed to your retirement account.  So, why are you receiving this long after the April 15th filing?  Because investors can make contributions up until the tax filing deadline, therefore the forms don’t go out until well after tax season is over.  Keep the form for your records and provide one to your accountant for their records as well.  The good news is that you don’t have to do anything with your filing because TAX SEASON IS OVER!  😊 

Quick Hits:  

  • Have trouble starting or consistently meditating?  Try these tips:  AP News   
  • Mmmm - peanut butter strawberry overnight oats to start your day:  EatingWell    
  • Some people are eating poison ivy and poison oak in search of immunity – as a poison ivy sufferer, I can’t imagine doing this!  WSJ   
  • Summer’s arrived, so here are some tips for starting an outdoor exercise routine:  AP News  
  • Here’s what a cold shower does for your body and brain:  Get Pocket  
  • Read a person’s weight loss journey, after starting, then stopping, a weight loss drug:  WSJ     

Improving Your Balance: Last year, I tore an ankle tendon and my doctor recommended exercises to improve my ankle strength and balance.  One was the flamingo pose consisting of standing on one leg which showed my balance was horrible - not a surprise, considering the injury.  But the big surprise was that my “good” ankle’s strength and balance wasn’t much better.  As we age, we lose some strength and flexibility and can also lose some sharpness in our vision and hearing which affects balance.  According to researchers, poor balance can contribute to more falls, less independence, and shorter life spans.  But improving balance isn’t just for older folks, young athletes can improve performance by strengthening stability and coordination.  And that flamingo pose?  You can even do it while you brush your teeth or watch TV!  Axios   Healthline    

Summer is here, so here is a baseball quote: “Little League baseball is a very good thing because it keeps the parents off the streets.”  Yogi Berra 

Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!


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