Fed Divided On Inflation: Five Stocks To Profit From Easy Rates

A divide has emerged within the Federal Reserve over the timing of proposed interest rate hikes, according to the minutes of its July meeting. This key economic measure has remained well below the Fed’s targeted level of 2% for an extended period. Moreover, the central bank’s pet measure of inflation experienced a decline recently, adding to concerns on this count.

At the same time, the central bank looked united on the need to reduce the size of its balance sheet sooner rather than later. But the key takeaway from this document was Fed policymakers’ increased focus on the perils of low inflation levels. This has given rise to uncertainty over the timing and frequency of near-term rate hikes. Given such a scenario, investing in stocks benefiting from a soft interest rate environment may continue to be a prudent option.

Low Core PCE Inflation Raises Concerns

At the end of last month’s meeting, the Fed had opted to leave rates unchanged, a move that gladdened investors. But it now emerges that the decision was preceded by a long conversation on the recent dip in inflation levels. The Fed’s preferred inflation gauge, the core PCE inflation index, was flat at 1.5% in June. May’s figure also experienced an upward revision, to 1.4%.

But inflation still remains well below the Fed’s desired rate of 2% as well as the 1.8% pace achieved in February. The measure has slowly but steadily experienced a decline since then, which explains the concerns of a section of the Federal Reserve.

Divide on Inflation Emerges

Contrary to the Fed Chair’s views on this issue, this section of policymakers thinks that inflation may languish below the target level for a period which exceeds current expectations. They also believe that inflation runs the risk of slipping lower in the near future.

Views of such a nature have led to speculation that the central bank may reduce the pace of its projected rate hikes. Fed minutes show that a section of policymakers believe that the central bank should stay away from further rate increases until it receives conclusive proof that inflation is headed toward the targeted level.

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