Rising diesel prices will mean rising grocery prices

SPEAKER_1 (0:00)

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Kimberly Adams (0:31)

What will a quieter Fed do about persistent inflation?

From Marketplace in Washington, I'm Kimberly Adams. Federal Reserve officials are set to make their next decision on interest rates later today. We'll hear from Chairman Kevin Warsh in a press conference later this afternoon. For a look ahead, I'm joined now by Susan Schmidt, Portfolio Manager at Exchange Capital Resources. Susan, good morning.

Susan Schmidt (0:56)

Good morning.

Kimberly Adams (0:57)

Markets are betting that the Fed is going to raise rates today, maybe a quarter of a percentage point. It'd be the first rate hike since 2023 What's driving this expectation that the Fed is going to increase borrowing costs?

Susan Schmidt (1:09)

Investors anticipate this increase largely because consumer price index, recent economic news has shown that inflation isn't cooling as much as the Fed would like. So we haven't seen that inflation go down to a 2 percent level. It's still well above that. Investors are betting that the Fed will feel forced to increase interest rates to make sure that they are making progress against inflation.

Kimberly Adams (1:36)

What are some of the main things that are keeping inflation just perpetually up these days?

Susan Schmidt (1:42)

Well, the US consumer has stayed surprisingly strong. We haven't seen them back off on spending. There does seem to be a lot of economic activity. Nothing's really cooling the economy per se when we look at the economic data. Separately, one of the concerns has been that an increase in the price of oil will start to flow through the supply chain and through the economic activity, increasing prices overall. When the conflict in the Middle East first started, there was concern that oil prices would spike. As oil prices came back down to mid $70 level, investors and Fed weren't as concerned that it was going to impact inflation and increase prices.

This week, because of increased conflict, we're now back up with oil over $100 a barrel. That puts increased pressure on the Fed to worry about future inflation.

Kimberly Adams (2:35)

Plus, we've got record high diesel prices on the consumer end as well, and the high gas prices. What will you be watching for in Fed Chairman Kevin Warsh's press conference that comes just after the decision later today?

Susan Schmidt (2:47)

The press conference today is going to be especially interesting because remember that Chairman Warsh is relatively new to the job. He's also taken a very different communications approach than the prior Fed Chairman. Chairman Warsh doesn't like to give a lot of information to Wall Street and the markets in general. Very different than his predecessor. However, we do expect to hear from other governors and other members of the Fed later in the coming weeks.

This afternoon, investors will be tuned in for any changes in language and how the Fed is looking at the path for inflation rates. We're going to see the dot plot that reveals individual Fed members' expectations for interest rates in the coming months and years. Investors will be looking at that with great interests, trying to discern when and if another interest rate hike might be coming before year-end.

Kimberly Adams (3:42)

Susan Schmidt is Portfolio Manager at Exchange Capital Resources. Thank you, Susan.

Susan Schmidt (3:46)

Thank you.

SPEAKER_1 (4:03)

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Try Odoo for free at odoo.com. That's odoo.com.

Kimberly Adams (4:34)

We mentioned record-high diesel prices earlier in the show. The average price of a gallon of diesel passed $6 for the first time ever late last week, and since then, it's just kept climbing. Today, it's $6.31 a gallon, another record. A year ago, it was well under $4.

That of course has implications for all sorts of other prices across the economy too, particularly at the grocery store. Marketplace's Samantha Fields reports.