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Market Recap – October 31, 2022

Keel Point

October 31, 2022

Until the disinflationary data show up in official figures, the Fed will continue hiking interest rates with another 75 bp increase in November, bringing the Fed funds target to 3.75% to 4.00%.

  • The inflation data are not good enough to warrant easing interest rate hikes just yet, but also not bad enough to support a full 1% rate hike at November 1-2 FOMC meetings. September FOMC meeting minutes reported that its members see the greater danger in taking too little action to bring down inflation compared to the cost of being too aggressive.
  • While Chair Powell will be careful not to suggest a Fed “pivot”, he may indicate that smaller rates hikes lie ahead: 50bp in December and 25 bp in January, as signs of abating inflation become more evident. This would be consistent with other FOMC members indicating a need to assess the impact of Fed policy actions to date and new signs of declining inflation.
  • September’s CPI inflation reported two weeks ago showed another new high in core inflation at 6.6% over the past 12 months, but it also showed quarterly inflation annualized at only 2% in Q3.
  • No doubt the Fed’s raising the Fed Funds Rate and Quantitative Tightening are working: the average 30-year fixed mortgage rate reached 7.32% last Saturday, new housing starts are declining, and existing home sales have fallen over the past seven months. In addition, prices are down in rents, commodities, retail prices and other places, except services.

The question of whether inflation or interest rates peak first and then recede drives the debate on whether the economy is headed for a “hard” or “soft” landing.

  • The 2.6% annualized first estimate of Q3 GDP growth is helpful, but it was due principally to improving net external trade. Final sales to private domestic purchasers increased by only 0.1% annualized.
  • The Q-3 GDP estimate triggered the 10-year Treasury yield to ease back and then close at 4.02% on October 28. The 3-month T-Bill rate closed Friday at 3.95%.

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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