The Federal Reserve (aka “The Fed”) sets policies that impact interest rates in an attempt to keep inflation in check without crippling the economy.

• In 2022, the Fed aggressively raised interest rates to combat high inflation.

• Almost every Fed speaker has said that: • Inflation is too high

• Rates need to go higher still • Once rates are as high as they can be, they need to stay there for as long as possible • It is worth causing some economic damage in order to control inflation

• It is better to risk damaging the economy in order to beat inflation than to protect the economy and risk another inflation spike • The Fed does not want to repeat the mistakes of the early 1980s.

• In the 1980s, the Fed raised rates to unprecedented levels in order to combat high inflation, but then cut rates too soon, which may have contributed to the subsequent high interest rates.

• The market has generally believed the Fed’s guidance, with rates going up and stocks going down.

• However, recent economic data has caused a divergence, with some reports indicating that the Fed will continue to aggressively raise rates and others indicating that they will soften their stance.

• In particular, the jobs report showed strong job growth but slower wage growth, which is less of an inflationary concern for the Fed.

• The services sector also showed unexpected weakness, leading markets to believe that the Fed will soften its rate hike stance.

• The market’s reaction to these reports caused stocks to go up and bond yields (which move inversely to prices) to go down.

• It is unclear what the Fed will do next and whether they will continue to aggressively raise rates or change their stance.