The Federal Reserve has been aggressively raising interest rates to curb inflation, which continues to grow. In July, the Fed raised interest rates by another 75 basis points after doing the same thing in June. This demonstrates their commitment to reigning inflation in and ensuring it does not get out of control. The rising interest rates could have a negative impact on the economy, as they could slow down growth and make it more difficult for people and businesses to borrow money. However, the Fed appears willing to take this risk to combat inflation.
According to Fed Chair Jerome Powell, “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” implying that the Fed does not plan on being as aggressive with their rates in the second half of the year.
Consumers can benefit from higher interest rates because they make it more profitable to save money. In addition, banks are likely to offer better interest rates on deposits as they try to attract new customers. Higher interest rates also make it more profitable for people to invest in bonds and other fixed-income securities. However, new borrowers will face steeper interest expenses because they will have to pay more to borrow money. In addition, prices are likely to rise as companies pass on their higher costs of borrowing to consumers.
The U.S. is Putting More Chips on the Table
The passage of the CHIPS bill is a significant milestone for U.S. chip manufacturing as it will provide substantial financial support for the development of new semiconductor factories in the U.S. This will help to improve the competitiveness of U.S. chipmakers against their Chinese counterparts, who have been investing heavily in new manufacturing facilities in recent years.
The bipartisan bill, once signed into law by President Joe Biden, will provide aid and relief to manufacturers who rely heavily on microchips to make their products work. The bill authorizes $52 billion in spending over the next decade to revive America’s semiconductor manufacturing industry, which has struggled to keep up with China’s aggressive manufacturing growth.
Ultimately, this will result in an improved supply of chips for consumers and businesses, leading to increased innovation and advances across various industries, from 5G telecommunications to self-driving cars. The graph below shows the disproportionate value chain in the chip supply. Although the U.S. has the most demand, it is far behind China in its overall manufacturing output.
Recession or Not?
Although every major outlet has a different spin on whether the U.S. Economy is in a recession or not, we must look at the numbers and take a step back to gauge what’s going on.
The U.S. economy continues to struggle as the second quarter GDP report shows widespread weakness. The fall in real GDP at a 0.9 percent annual rate, with consumer spending, residential construction, and business spending on structures, equipment, and technology all falling, shows some serious issues. However, there are some silver linings.
The Purchasing Managers’ Index for July looked less than discouraging. It came in at 47.5, well below the norm but up from 45.2 in June. And according to Forbes, new orders for capital equipment rose 9%. The stock market has been relatively stable, and there have not been any major market crashes yet. So while there are certain areas of concern, it is too early to say that we are definitely in a recession.
In addition, the CHIPS bill and interest rate hikes could help to avoid an intense recession by combating inflation and increasing domestic manufacturing. By making it more expensive to borrow money, the Federal Reserve hopes to discourage consumers and businesses from borrowing too much and investing in things like housing and semiconductors that could lead to runaway inflation.
News at Lake Street
We are excited to announce that Lake Street was ranked No. 11 among Financial Advisor’s 2022 Top 50 Fastest Growing RIAs List! This recognition is a testament to the hard work our team is putting in each day to build a best-in-class wealth management platform to service our clients.
Articles We’re Reading
U.S. House Speaker Nancy Pelosi meets Taiwan’s president despite China’s warnings … (link)
The U.S. Had 6 Months of Economic Decline. So What’s The Definition Of A Recession?…(link)
Farmland: Why are the rich investing in it? .… (link)
U.S. factory orders rise solidly in June, beat expectations … (link)
For the Month Ending 7/31/2022 (Cumulative Returns)1
1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.
Did You Know?
Did you know that August is National Peach Month? This juicy fruit has been a favorite for centuries, and there’s no better time to enjoy them than during the dog days of summer. Here are a few fun facts about this delicious treat:
- Peaches are thought to have originated in China, where they were cultivated as early as 2000 BC.
- There are over 700 varieties of peaches grown around the world.
- Peaches are a member of the rose family, along with almonds, apricots, and plums.
- Georgia is known as the “Peach State” and produces more than 40% of all peaches grown in the US.
Peaches are one of the most popular fruits in the world. They are loved for their sweet taste, juicy flesh, and velvety skin. Peaches are also a great source of vitamins and minerals, including vitamin C, potassium, and fiber. Best of all, they are low in calories and fat-free. Whether you enjoy them fresh, frozen, or canned, there is no doubt that peaches are a delicious and nutritious treat. So go ahead and indulge in this summertime favorite – your body will thank you for it!
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.