The Federal Reserve’s continued inflation fight and positioning for 2023 and beyond were back in the spotlight over this past week. However, with the ever-important jobs data released this morning, the fight remains far from over. I feel like we have seen several acts from the same play now for several months! Perhaps the single most impactful statement of the week was from Federal Reserve Chairman Powell’s speech on Wednesday, where he stated, “A moderate pace of rate increases is on the horizon, perhaps as soon as the December meeting.” This sent our markets considerably higher on Wednesday and signaled that what the Fed has done to this point might be starting to show some signs of working. He cautioned that monetary policy is likely to stay restrictive for some time until real signs of progress emerge on inflation. Keep in mind that we will get the November inflationary readings during the next Fed meeting in a few short weeks (December 12-13th). With that being said, the November Jobs Report, released this morning, showed a hotter-than-anticipated labor market. Nonfarm payrolls increased 263,000, much higher than the 200,000 number projected by economists polled by Dow Jones. The unemployment rate held steady at 3.7%, reflecting an overall continued shortage of much needed workers.
This will keep the pressure on the Fed to hold a steady course of action for sure. The forward-looking bet, based on the futures markets, is a 50-basis point increase at the conclusion of the Feds December meeting. This would indeed be a slowdown from the consecutive 75 basis point increases we have seen over the last few months. Chairman Powell’s closing remarks from his recent meeting were, “We will stay the course until the job is done”. Based on the employment data from Friday, more work will certainly be needed. Now we must wait and see how quickly the rate increases can catch up to the lagging data. Deep breaths are ensuing, and fingers are crossed!
While Chairman Powell’s comments were warmly welcomed, it is clear the economy is still working through many obstacles. There is growing evidence that supply chains continue to ease. With the latest potential rail workers strike averted, the forward momentum should continue. On the corporate earnings side, 2023 adjustments are still making headlines as companies deal with balance sheets and more importantly, cash flow concerns. This continues to hit the technology and retail industries the hardest as consumer sentiment and spending shift. So far, holiday spending seems robust, but we won’t know the full extent of how shallow or deep the “pockets” will be for several weeks. How far the proverbial “Santa Rally” goes will be strongly tied to the upcoming headlines. As the cold weather sets in and the eggnog flows, the sleigh ride is still in the early stages. Hang in there and enjoy your weekend!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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