Market (Mo)ment

Market Update

DEC 8, 2022

As a follow up to last month's market update, the Federal Open Market Committee (FOMC) is scheduled for their final meeting of 2022 on December 14th. There's been considerable buzz in the media as to what the outcome of the meeting will be, but the consensus is that they'll definitely announce another rate hike. The debate is whether it'll be another 75 basis points (0.75%) as we've seen the last several months, or if they'll notch it down to 50 basis points.

Before jumping into what I think is going to happen, here's a quick refresher on how the FED's brain works: They care about employment & stable prices. If you live anywhere in the United States, you know that inflation has been in an upward spiral since the start of 2022. On the other hand, unemployment has also been at its lowest levels in almost 50 years. As a matter of fact, there have been more than 260,000 non-farm payroll jobs added into the economy just last month (Nov 2022).

Since the start of 2022, the FED has raised interest rates a total of 6 times — the last 4 times each being a hike of 0.75%. Bearing in mind that the main reason for the hikes have been to curb inflation, the results speak for themselves

Notice the downward trend

There's debate on what the downward trending inflation data could mean for the upcoming FOMC meeting and subsequent rate announcement. The argument for a smaller rate hike makes sense, after all the last several months of rate-hikes have started to finally ease inflation pressure on the economy. However, I don't believe that the FED will slow down the rate hikes in the near future as their target inflation level is (and has always been) around 2%. That, combined with the roaring-strong jobs market, gives me confidence that we'll likely see another 0.75% jump in rates — not 0.50%.

I hope I'm wrong, because then it would officially mean that the we've reached a FED PIVOT aka the FED has strong conviction that the economy is back on track towards normal inflation levels.

Note that this content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.


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