Dividend Investing Weekly: Fed Might Have to Raise Their Inflation Target

You are receiving this email because you signed up to receive our free e-letter Dividend Investing Weekly, or you purchased a product or service from its publisher, Eagle Financial Publications. [Dividend Investing Weekly] [Cash Machine]( [Quick Income Trader]( [Breakout Profits Alert]( [Hi-Tech Trader]( Fed Might Have to Raise Their Inflation Target by Bryan Perry Editor, [Cash Machine]( 01/22/2024 Sponsored Content [Perfect Win Rates Found By This AI – HUGE Wins]( If you have 60 extra seconds a day, these historically proven win rates will change your life. Pro trader, Charlie Moon discovered a game changing AI strategy and is giving up his secrets in his brand new "Ultimate Guide to AI Options Trading". Get a copy 100% free for a limited time. [Click Here for your free guide while you still can]( It seems by now that even people without a penny in the stock market have heard that the Fed’s target for inflation and interest rates is 2%. And while that objective sounds terrific, in the world we live in, the United States is experiencing upward pricing pressure in a several areas of life that makes this target elusive and seemingly unrealistic. Within the latest Consumer Price Index (CPI) report for December, there were some components that highlight certain aspects of the economy that are experiencing ongoing higher costs associated with specific long-term underlying conditions that will not be resolved anytime soon. To the market’s credit, and to the consumer as well, some things that are going to remain expensive indefinitely are being adjusted for by how they are being accepted and priced into household budgets. Total CPI was up 3.4% year over year, versus 3.1% in November, and core CPI was up 3.9% year over year, versus 4.0% in November. The key takeaway from the report is that inflation, while improved, has lost some of its downward momentum. Therefore, the Fed isn't likely to be in a rush to cut interest rates -- at least not yet, based on this latest CPI reading. The higher-for-longer language can be squarely applied to shelter costs. Breaking down the Consumer Price Index (CPI) report, it is clear the cost of shelter, be it home ownership or rental units, remains stubbornly high. Strip out the cost of putting a roof over your head and inflation is running at 1.9%, but the shelter component is the biggest component of the inflation report and is a large pull on household budgets due to an ongoing supply shortage of affordable housing in the most desirable cities. [Bryan Perry's 4th & Final “Millionaire Beta Test”]( Over each of the last three years, Bryan Perry's Quick Income Trader Beta Tests have generated 7 figures in trading gains, each time in under 10 months. To learn about Bryan's next (and last) program, [follow this link](. According to the CPI report released on Jan. 11, the shelter index increased 6.2% over the last year, accounting for over two-thirds of the total increase in the “all items” total less food and energy index. Some key data from the CPI include: - The food index was up 0.2% month over month and 2.7% year over year. - The energy index was up 0.4% month over month and down 2.0% year over year. - The used cars and trucks index increased 0.5% month over month and was down 1.3% year over year. - The shelter index was up 0.5% month over month and 6.2% year over year. - The all items index less shelter was up 1.9% year over year. The factors contributing to higher-for-longer housing and rental costs are ongoing low supply resulting from a work stoppage during the pandemic, strict zoning regulations limiting the density and types of housing that can be built in certain areas and the increased cost of construction materials, labor and land, making it more expensive to build new homes and full-featured apartment complexes. In the first quarter of 2021, the median home price in the United States was $369,000, according to the Federal Reserve. By the first quarter of 2022, the median home price had increased to $423,000 and topped out at $479,500 in Q4 2022. 11 quarter-point rate hikes later, the average home price dipped to $418,500 in Q3 2023 and is now moving up again as mortgage rates are dropping in the past two months. According to the current CME FedWatch Tool, there is a 46.2% probability of the Fed cutting the Fed funds rate by a quarter-point to 5.00-5.25% at the March 20 Federal Open Market Committee (FOMC) meeting and a 50% chance of a second quarter-point cut at the May 1 meeting. These numbers are well off the prior week, where the chance of a March cut was 76.9% before the release of the CPI report. Bond yields immediately backed up across the yield curve and stock prices gave back some ground against this new reality check of the dampened forecast for near-term rate cuts that powered the stock market in late 2023. Another component of the CPI that is seeing higher ongoing costs is insurance in all its forms -- property insurance, rental insurance, motor vehicle insurance, health insurance, life insurance, disability insurance and other types of insurance. Per the latest CPI report, the cost of insurance accounted for 3.2% of the CPI weight, meaning for every $100 spent by urban consumers, $3.20 went to insurance payments. The cost of car insurance alone was up by 8.4% in 2023, according to research firm ValuPenguin, citing higher prices for cars, more traffic accidents, more car thefts, more weather-related damage, higher costs of maintenance, repairs and medical treatment due to accidents. [Trade Smarter: Discover Hidden Opportunities w/ A.I.]( The world’s leading artificial intelligence is forecasting trends in the market in our Free Live A.I. Training. [Save your seat to watch live >>]( A third component to inflation that isn’t likely to come down is the cost of professional services. Rising overhead costs related to rent, utilities, transportation and wages for many professional services companies have all been raised sharply these past two years when inflation took off. Companies are also investing in more training and technology to deliver better value to customers. Firms are being more selective about the projects they take on with a higher focus on profits and raising prices accordingly. Unless there is a deep recession, it should be thought that there will only be further cost increases for essential services. There may be some give-back in food and energy prices as has been the case in the past three weeks. And the cost of clothes, shoes and other finished goods like consumer electronics will fluctuate lower during supply gluts, but there is likely to be very sticky pricing for shelter, insurance, professional services, medical care education and skills training for those entering the professional trades sector. One can argue that going forward, again, short of a broad and deep recession, annual inflation will likely run at an annual clip of 3-4% with the Fed probably having to adjust its long-term target to 3% from 2%. And here’s the good news, the stock market of the past week seems perfectly fine with this supposed reality check. The yield on the 10-year T-Note has risen from 3.78% to 4.20% in the past month, with the Dow, S&P 500 and the Nasdaq trading to new all-time highs. This transition by the stock market to move to a place where slow but steady economic growth comes with a reasonably acceptable rate of inflation is a new development and might just be the new normal for the Fed in 2024. Bullish investors are buying into this narrative and this is, in my opinion, why the market is trading better against a bond market that saw some selling pressure this past week. Bond prices got ahead of themselves and are normalizing to reflect a more probable Fed monetary policy scenario and stocks are taking the least path of resistance -- higher. Sincerely, [bryan-perry-sig] Bryan Perry Editor, Cash Machine Editor, Premium Income PRO Editor, Quick Income Trader Editor, Breakout Options Alert Editor, Micro-Cap Stock Trader About Bryan Perry: [Bryan Perry]Bryan Perry specializes in high dividend paying investments. This weekly e-letter combines his decades-long experience in income investing with a simple, easy-to-read format that investors of all stripes can work into their portfolios. Bryan also serves as Editor of these services: [Cash Machine]( [Premium Income PRO]( [Quick Income Trader]( [Breakout Profits Alert]( [Hi-Tech Trader]( and [Micro-Cap Stock Trader](. About Us: Eagle Financial Publications is located in Washington, D.C. – only a few blocks from the Capitol. Our products have been helping investors build their wealth for several decades. 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