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Page 16 of 105

IPC COMMUNITY 17 FALL 2023 A Historic Battle with Inflation For the past 18 months, the Federal Reserve has been battling historically high inflation with annual inflation peaking in June 2022 at 8.9%. Core price inflation, which excludes volatile categories like energy and food, peaked a few months later in Sep- tember 2022 at 6.6%. Both measures remain high. Annual inflation is still running at 3.3% and core prices are 4.7% higher than they were a year ago. The Federal Reserve was sluggish to respond to rising inflation, thinking that price increases were only temporary. The delay forced the Fed to move abruptly with a series of aggressive rate hikes. The Federal Reserve raised its tar- get rate by 25 basis points in July, its 11th hike in 16 months. The Fed's target federal funds range of 5.25–5.5% is the highest level since January 2001. The Implications of Higher Rates Tightening monetary policy has pushed interest rates up across the entire yield curve, and this impacts the economy in several ways. The yield on the 10-year Treasury bond is the highest it has been in 16 years. The rate was over 100 basis points lower just this spring. The elevated interest rates can act as a damp- ener on both consumer spending and busi- ness investment, leading to slower economic growth. Additionally, the shift in the yield curve can alter the risk-reward dynamics for various financial assets, influencing investor behavior. Here are three ways higher interest rates are likely to impact the economy in the coming year. 1. Higher interest rates result in higher borrowing costs for businesses. When interest rates rise, the cost of financ- ing new projects, expanding operations, or even maintaining current levels of business activity become more expensive. This can lead to a reduction in capital expenditures, as companies may delay or scale back plans for growth to avoid taking on costly debt. Smaller businesses, which often rely more heavily on loans for day-to-day operations, may be particularly vulnerable to rate hikes. Ultimately, higher borrowing costs can squeeze profit margins. How do you pick Shawn out in a crowd? Typically by his signature bow-tie. In fact, on National Bow Tie Day earlier this year, Shawn posted on social media, "I sorta hate that everything has to have a holiday…until now! If I were to invent one holiday, this might be it. But it would definitely be two days, and everyone would have school off." Shawn is a purist through and through—no clip-on bow ties in his closet.

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