The most important news last week was the better-than-expected October CPI inflation report which spurred financial markets to rally on the belief that the Fed can ease back on the pace and ultimate level of interest rate increases.
- With the Fed already having signaled a more risk friendly slowdown in rate hikes, October’s core CPI rate increase of 0.3% m/m (annualized at 3.3%) increases the likelihood of it increasing its Fed Funds rate only by 50bp in December and by 25bp at the Jan 31/Feb 1 2023 meeting.
- The opportunity for a “soft landing” is also much improved, and the Atlanta Fed’s GDPNow model November 9 estimate for 2022 Q-4 real GDP growth (seasonally adjusted annual rate) is 4.0%, up from 3.6 percent on November 3.
- Disappointing is the decline in the University of Michigan’s consumer sentiment index to a five-month low of 54.7 in November, down from 59.9 in October, principally as a result of the negative impact of higher interest rates.
Mid-term elections have left Democrats with control of the Senate and are still favoring Republicans to control the House of Representatives with a small majority.
- As of Sunday evening, Democrats had captured 203 Congressional seats with Republicans having won 212, leaving just 20 House seats undecided. Of those 20, Republicans need just 6 to have a majority and Democrats would need to win 15 to retain their majority.
- The Georgia Senate run-off election is still important to restraining progressive tax and spending policies, especially if Democrats do succeed in gaining a majority in the House
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