By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The US Federal Reserve is raising the Fed Funds rate in an attempt to drive down demand for goods and services, as they battle our current inflationary environment. However, given the exceptionally strong labor market, they have their work cut out for them. Furthermore, consumer sentiment is once again rising. In fact, it has rebounded with ferocity as the chart below depicts.

As Bloomberg speculates, the reduction in gas prices may have fueled the rebound in consumer sentiment currently witnessed. With strong employment and improving (robust) sentiment, how much will demand be thwarted? With real rates still quite negative (-4.5% for the 10-year Treasury Note this morning), the Fed will likely need to raise interest rates until real positive rates are achieved and demand for goods and services tamped down. The Fed claims that they are committed to fighting inflation and that it will “do what it takes”, but the US consumer may make the Fed’s task more challenging given the elevated confidence.