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Market Recap – November 7, 2022

Keel Point

November 7, 2022

The Fed raised its Fed Funds rate another 75 bp this past week and said that while it will continue raising rates most likely at a slower pace the upper limit reported in its “dot plot” at its September meeting may be too low. Financial markets reacted negatively.

  • There was no surprise in the 75 bp rate increase announced last week or that the pace of rate increases would slow as the Fed assesses the impact of higher rates and quantitative tightening. The expectation, hence, is for a 50bp increase in December and another 25bp in January.
  • The big surprise was Chair Powell’s mention that the upper limit for the Fed Funds rate likely has moved beyond 4.5% – 4.75% suggested in the September 2020 Summary of Economic Projections, and that it could rise to 5% – 5.25%.
  • The question is how much Fed officials may be underestimating the impact of their rate hikes this year on reducing inflation and slowing economic growth. The consensus is that inflation will decelerate more quickly than the Fed is expecting and that by the end of January 2023 core PCE inflation will be below the 4.75% threshold that would otherwise trigger additional rate increases.
  • Between now and the January 2023 FOMC meeting, CPI and Personal Consumption Expenditures inflation data will be available for October, November and December, along with November and December employment data and other indicators of slowing U.S. economic growth. Each data release will trigger market reactions about whether the slowing of inflation and growth are on track to be meeting the Fed’s targets.

Mid-term elections are looking more likely to result in at least one body of Congress to change hands making it more difficult, if not impossible, for President Biden and Democrats to raise taxes or expand social spending programs.

  • The biggest risk for the economy and financial markets from a divided Congress is the machinations around extending the Debt Limit next fall.

Disclosure: Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC. Brokerage and Investment advisory Services are offered under the Keel Point brand. Investment Advisory services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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