Financial markets welcomed last Wednesday’s release of minutes from the November 1-2 FOMC meetings which confirmed Fed intentions to reduce the pace of rate increases going forward.
- FOMC Minutes reported that “a substantial majority of participants judged that a slowing in the pace of rate increases would likely soon be appropriate,” while “many participants commented that there was significant uncertainty about the ultimate level of the federal funds rate needed to achieve [FOMC] goals,” which will depend in incoming data.
- The FOMC’s Open Market Desk’s survey respondents viewed a 50 bp increase in Fed Fund at the December meeting as most likely.
- As for new incoming data since the November meetings:
- October inflation numbers are lower with signs of further declining.
- Jobless claims are up, and wage growth is slowing.
- November jobs growth is like to be reported on Friday as less than 200,000.
With 400 bp of monetary tightening this year, the U.S. economy will slow in 2023. While a recession is increasingly likely, the belief is that any U.S. recession would be shallow and short lived.
- As for alerts of an approaching recession, three big ones are: the 10-year / 3-month Treasury spread being recently inverted, the leading economic indicators index contracting since February, and the six-month annualized growth rate still being negative.
- That said, there are few signs that real growth or labor markets have rolled over: employment growth is still positive, 3rd-quarter GDP growth was up 2.6% (annualized) and 4th-quarter real growth also looks to be positive by 1.5%+ (annualized), with the Atlanta Fed GDPNow still indicating 4+% 4th-quarter annualized growth.
In case you missed it: There is a strong chance that the SECURE 2.0 legislation will pass before the end of 2022, revising existing rules for retirement saving and required minimum distributions.
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