On Wednesday, we saw the Federal Reserve stick to their plan of raising the fed funds rate by .50%. The plan from here, however, remains unclear. The only thing that is clear is that it seems the quick and sharp tightening is in the rearview mirror. Over the course of 7 meetings, the Fed has raised their target rate from slightly above 0% to 4.50% in order to combat decades high inflation. “Last December the median forecast by Fed officials for the fed funds rate in 2022 was 0.75%-1%. In March it was 1.75%-2%, then 3.25%-3.5% in June, 4.25%-4.5% in September, and now it’s 5%-5.25% for 2023”. Jerome Powell reiterated again that they expect to continue to raise rates higher next year. All eyes now turn to 2023 to see how the economic data rolls in. It’s more than likely that we will see smaller rate hikes going forward but don’t expect any type of rate cut until the Fed is convinced we are headed towards a 2% inflation rate. However, many economists agree that rate increases have long and variable lags. We may not know for a year or more if the Fed tightened too much or not enough.
The U.S. stock markets did not seem to like Fed Chairman Powell’s tone during his Wednesday speech. The overall markets dipped on Wednesday followed by a 700 point drop on the Dow on Thursday. Retail sales numbers for November also came in weaker than expected(although this could be viewed as positive as demand weakens due to higher inflation). The retail data showed consumers are spending less on electronics, clothing, and sporting goods and spending more on everyday staples such as food and health products. “The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path,” Powell wrote. The recent jobs data also shows that the US jobs market continues to be resilient. Employers added 263,000 jobs in November, keeping the unemployment rate at 3.7%.
Not all the news this week was negative. One positive comes from the current US two-year Treasury yield, which is a barometer for expectations about the feds funds rate. The yield ended Thursday at 4.249%. Pretty much unchanged from where it closed on Wednesday and still below its multi-year high of over 4.7%. This is a sign that bond investors don’t quite buy the Fed’s hawkish tone and believe they will have to pivot to a more neutral stance sooner than later.
Tis the season for holiday work parties! One recent article noted that in-person holiday work parties are on the rise after a two-year hiatus caused by the Covid pandemic. 42% of companies say they are hosting one this year. Our team here at Mosaic had our holiday party last Friday evening and it was refreshing to say the least. We enjoyed a nice dinner and some competitive duckpin bowling! In a hectic world, it’s the moments like a simple outing with coworkers that should be cherished. Whether you have a holiday party with work or with loved ones, we here at Mosaic hope you enjoy.
Steven C. Dengler, CFP®
Financial Advisor / Director of Planning
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.