George Hosfield, CFA, discusses Ferguson Wellman's quarterly strategy titled, "Inflation's Flame Flickers," which addresses the narrow market leadership, the impact of higher interest rates on inflation and how assets are priced at this stage of the economic cycle.
George Hosfield, CFA, discusses the firm's quarterly strategy titled "Stalemate," which highlights the Fed's ongoing battle to tame inflation along with our views on the health of the banking industry and capital market expectations for the balance of the year.
Director and Chief Investment Officer George Hosfield, CFA, discusses the Fed raising interest rates, peaking inflation and our view on equities and volatility across all asset classes in our Investment Strategy titled, “Balancing Act.”
It was an action-packed week in the capital markets headlined by the Federal Reserve’s first meeting of 2024. The central bank decided to leave their benchmark interest rate unchanged at a 23-year high – a level at which it has been since July of last year.
As we enter the final stretch of the college football season, the quote, “Not so fast, my friend,” from ESPN’s College GameDay analyst Lee Corso, accurately captures the week’s capital markets events. After a weaker-than-expected October jobs report and the U.S. Federal Reserve leaving rates unchanged, investors are confident the Fed is done raising interest rates and have quickly shifted their sights to the first rate cut.
The lead story from the stock market this year may well be the outperformance of a narrow and select group of technology companies, however the leading economic story this year may be the surprising resilience of the U.S. economy in the face of the Federal Reserve’s concerted effort to rein in growth via higher interest rates.
It is no surprise that all eyes are focused on the economic headlines – investors and consumers are searching for tangible pieces of information to guide decision-making and create a logical roadmap for 2023. You don’t need to look far to see the latest news plastered across the media: corporate layoffs.
The major event in the capital markets this week took place Friday morning in Jackson Hole, Wyoming. Every year, Federal Reserve Bank leadership meets for a conference to discuss current and future policy. Ahead of today’s meeting, some investors had been optimistic that Powell would soften his stance on the pace of tightening.
The recent intensity of economic and earnings data matched the temperatures outside this week. In absolute terms, inflation remains too hot and while there is some evidence of moderation, the Federal Reserve doubled down on its commitment to return inflation to its 2.0% long-term target, suggesting further interest rate hikes through the end of this year.
Earlier this week, the Federal Reserve raised its benchmark interest rate to 1.75%, an increase of 0.75% from the previous rate. This increase, the largest since 1994, was considered a possibility, albeit one the market hadn’t fully discounted.
Both fear and greed were on full display this week as the Federal Reserve raised the federal funds rate 50 basis points and announced that additional 50 basis point increases would be needed in the future. Fed Chairman Jerome Powell stated that the U.S. government would stop buying as many bonds on the open market in the coming months, effectively shrinking the Fed’s balance sheet and removing some liquidity from the system.
Last week, the Federal Reserve made headlines after raising their benchmark interest rate by 0.25%. This week, the Fed remains in the spotlight due to comments made by Chairman Jerome Powell at Monday’s National Association for Business Economics annual conference.
On Wednesday, the Federal Reserve lifted their key interest rate by 0.25% in the first of six expected rate hikes for this year, and possibly another four proposed increases in 2023. Federal Reserve Chair Jerome Powell had indicated that this increase was coming. So, when the stock market rose on Wednesday in response, it was less about the rate hike itself and more about Powell’s language associated with the move.
In our Outlook 2022 publication titled "Extraordinary to Ordinary" we highlighted that more volatility would be a feature of 2022. Volatility was extraordinarily high in 2020 during the zenith of the COVID-19 crisis and well below average during the robust economic recovery of 2021. This year we expect an environment of more normal volatility.
This week, volatility returned to capital markets due to the recent emergence of the Omicron variant. Initial reports indicate Omicron shows increased transmissibility and mild symptoms, a “mixed bag” of changes over Delta. And while it will be several weeks before we see a more accurate picture of its impact on human health, capital markets immediately responded with increased stock market volatility and lower interest rates.
After months of debate, President Biden chose to take the bipartisan route nominating Jerome Powell to serve a second four-year term as Federal Reserve Chairman.
This week, President Joe Biden is expected to announce his choice of Federal Reserve chair. The two favorites are the incumbent Jerome Powell and current Fed governor Lael Brainard. Within the last several weeks, odds showed that Chair Powell was a shoe-in. But more recent indications show Brainard’s favorability increasing.
This week, Federal Reserve Board Chair Jerome Powell announced that later this month the Fed will begin “tapering” its asset purchase program now that the economy has moved past the need for extraordinary stimulus. As a reminder, to combat the recessionary effects of the pandemic and stimulate the economy, the Fed reduced interest rates to 0% and reintroduced an asset purchase program to the tune of $120 billion per month. By any measure, this is a remarkably large stimulus program.
As autumn dawned this week, investors witnessed the first move by a developed market’s central bank to raise interest rates since the COVID-19 pandemic began. No, the Fed didn’t raise rates. Rather, it was Norway’s central bank that moved its short-term interest rate target off the zero bound, citing improved economic activity that no longer justifies such monetary policy accommodation.
Federal Reserve Chair Jerome Powell’s speech at last month’s Jackson Hole Economic Symposium focused market participants on the labor market ‘speedometer’ that will determine how much and for how long our central bank will maintain its current stimulus measures. The Fed has set a high bar for achieving ‘substantial further progress’ towards full employment.
A year ago, Federal Reserve Chair Jerome Powell famously said, “We’re not even thinking about thinking about raising rates.” At this week’s Federal Open Market Committee (FOMC) meeting the Fed took its first tangible steps to lay the groundwork for a gradual removal of the stimulus measures enacted last year.
Both the financial and popular press have been inundated with headlines on inflation. Last week’s higher than expected Consumer Price Index (CPI) report added fuel to this fire. Given the elevated inflation measures reported the last two months, two questions rise to the fore: 1) Is the inflation we are all seeing temporary or long-lasting, and 2) How and over what timeframe will the Federal Reserve address it.
Earlier this month in an interview with 60 Minutes, Federal Reserve Chair Jerome Powell indicated he believed the U.S. economy “seems to be at an inflection point” due to widespread vaccinations and previously enacted stimulus measures. He added his expectation that the economy would begin to grow “much more quickly” and that the pace of job creation would accelerate.
