While the Consumer Price Index (CPI) fell 0.1% in December, headline CPI rose 6.5% from a year ago, highlighting the persistent burden of rising prices in the US. The current inflation rate is far away from the Fed’s 2% target.
The Federal Reserve raised interest rates seven times last year as it battles the multi-decade high inflation, taking the target rate into a range between 4.25% and 4.5%, the highest level in 15 years. The Fed expects anemic economic growth next year of just 0.5% and predicts that unemployment will hit 4.6%, up from its current rate of 3.7%.
Furthermore, money markets are pricing a rate peak around 4.9%, followed by nearly half a percentage point of rate cuts by the end of 2023. However, Fed officials have been saying rates are heading above 5% and will stay there all year. Atlanta Fed President Raphael Bostic said the central bank should raise interest rates above 5% by early in the second quarter and then go on hold for “a long time.”
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