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Community-Q423

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IPC COMMUNITY 20 FALL 2023 catching up, which could put downward pres- sure on the dollar and increase the cost of imported goods in the United States. For man- ufacturers that have existing debt, the cost of servicing that debt will increase, putting addi- tional strain on financial resources. With banks having fewer funds to lend due to higher inter- est rates attracting money to other investment vehicles, electronics manufacturers may find it more challenging to secure loans. In summary, higher interest rates can pose significant challenges for electronics manu- facturers, affecting everything from capital allocation and operational efficiency to con- sumer demand and global competitiveness. Don't Expect Rate Cuts Anytime Soon The Fed has two remaining meetings in 2023. Right now, the Fed Fund futures pric- ing data suggests the Federal Reserve is done raising rates. There is a 52% probability that the Fed keeps rates steady in November, and about the same probability the federal funds target stays the same in December. Fed Chair Jerome Powell, for example, took a hawkish tone during his highly anticipated speech in Jackson Hole, Wyoming, back at the end of August. "We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data," he said. "It is the Fed's job to bring infla- tion down to our 2% goal, and we will do so. We are prepared to raise rates fur- ther if appropriate and intend to hold policy at a restrictive level until we are con- fident that inflation is moving sustainably down toward our objective." Inflation, especially core inflation, remains high, which is the Fed's preferred gauge of pricing pressure. The Fed paused rate hikes in September, but the Fed will stay vigilant and will be quick to raise rates again if inflation is still strong in November. The next big question on everyone's mind is how long the Fed will keep rates high and when a pivot to rate cuts will occur. While the Fed might raise rates again, it does appear to be reaching the top of its interest rate ladder. Some, like former Treasury Secretary Larry Summers, see a continued risk of inflation, driven in part by wage inflation and a tight labor market. He noted recently that wage and productivity data point to an underlying inflation rate in the range of 3.5%, well above the Fed's 2% target, and it may not be decel- erating. In an interview this past summer, he noted, "If you look at wage inflation, it was faster for the month than for the quarter, faster for the quarter than for the year." It is likely to be some time before the Fed will feel like it has accomplished its goal of returning inflation to the 2% range. The current economic landscape, char- acterized by persistently high inflation, mirrors the unpredictability of Shake- speare's witches' proph- ecies. In this unfolding economic drama, the link between infla- tion and interest rates emerges as a central theme, and just like Macbeth's journey to the throne, the path ahead for interest rates is poised to be longer and more con- voluted than most anticipate.

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