Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
Fed Week Begins Amid Easing Inflation and New Pressures
As the Fed prepares to meet this week, inflation continues to trend lower—but several risk factors are keeping policymakers cautious. In this update:
Tune in for a quick breakdown of what to watch from the Fed’s latest meeting and what it means for markets heading into summer.
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Video Summary:
Adam Phillips: Welcome to Fed Week. This is one of those eight times a year when the Federal Reserve meets for two days to discuss interest rate policy. And that is happening, uh, tomorrow, Tuesday, and on Wednesday. So even though markets are closed on Thursday for Juneteenth, a lot of us are going to be watching the Fed and specifically the comments that Jay Powell makes following the FOMC meeting on Wednesday afternoon.
So we got inflation data last week. We saw that inflation continues to move in the right direction. We've actually seen this for the last few months, and so a lot of people, specifically the Trump administration for one, are calling for the Fed to start cutting rates, really provide some relief to parts of the economy that are feeling the pain right now.
We could point to weakness in the housing market, uh, and lower-income households. Now that being said, even though inflation is trending in the right direction, we're seeing the impact of elevated interest rates on parts of the economy. The Fed is not likely to move this week. They are still pointing to a lot of uncertainty that we're facing, and specifically around inflation as well.
We can point to some areas, uh, of the economy, of the markets, of the headlines where we're seeing some. Potential for inflationary pressure. I'll highlight a few that I'm keeping an eye on. Number one is immigration. Certainly, that's been in the news. And the reason that we keep an eye on it, the Fed keeps an eye on it, is because we know a lot of jobs are provided to, uh, to immigrants and, and those that that come into the U.S. And so to the extent that we see deportations or.
Restrictions on immigration could impact the supply of labor and, then, actually impact wage costs. So that is something for the fed to keep an eye on. The other one is tariffs. Now we still, we are still a few weeks shy of that, uh, self-imposed 90-day deadline, or extension for when the Trump administration.
Who's going to be negotiating trade deals? We haven't seen a whole lot of progress there. We've got a little bit of time to go here, but right now there's just a whole lot of question marks around that. And so we are on the lookout for potential signs of higher prices, uh, that are coming through from tariffs.
Number three, I would point to the fact that we've seen the dollar continue to depreciate here. Now we know that we have come into the year. The dollar is at extremely elevated levels compared to other major currencies around the world. And so we're not too worried about the fact that the dollar is weakening here.
This isn't, uh, the, the, uh, a reflection of de dollarization as some have said. But we are, uh, we are noting that the directional move of the currency, we've seen the dollar depreciate about 10% from its high in January. And I think this is important for the Fed because it simply means that if the dollar is falling, that makes imports that much more expensive, and that could drive inflation a little bit higher over the near term.
The last thing I will mention, and this is really timely, is the fact that we've seen oil prices move quite a bit higher. Now, I think this is important for a few reasons. Number one is, even though I mentioned a few minutes ago how inflation has been trending lower. One of the big drivers of this disinflation we've been seeing is the fact that oil prices were falling so sharply over the last few months.
Now we've actually seen this trend reverse of late. This actually happened before the latest events surrounding Israel and Iran. Uh, but now. Uh, it is certainly the, the, the upward move in oil prices has certainly been exacerbated because of the, the latest geopolitical, uh, events. And so we are actually seeing oil prices that are about 25% higher as of this recording, uh, on, on Monday morning here for me.
And, uh, about 25% higher, uh, over the last few weeks and still down a little bit, uh, from the January highs, but certainly moving in, in the wrong direction if you're trying to get inflation down. So these are the things that are on the Fed's mind. This is why I expect them to really take a more cautious tone here, at this meeting.
That's, uh, that concludes on Wednesday. We're going to talk about this next week as well. But, uh, one of the things that I'll be looking to unpack is their latest projections around inflation, around the economy. Uh, such measures as un as the unemployment rate. I would expect that they will, uh, move their inflation expectations higher for the full year and perhaps the unemployment rate higher as well.
Suggesting some, uh, um, uh, some sticky inflation and perhaps some weakening of the economy. So it's going to be really interesting to see where all this goes. Uh, we're where all this shakes out at the following Wednesday's meeting, but we're going to have a whole lot to discuss next week. So please join in then. Until then, uh, be well and please contact your advisor if you have any questions.