Federal Reserve Raises Rates 0.50%, Promises More Rate Hikes on the Way… The central bank reiterated its intention to raise rates in 2023, thereby weighing on economic growth.
What it means— It’s like a ﬁnancial version of the movie Jerry Maguire, when the main character says, “Help me help you!” Traders and investors had convinced themselves that modest economic growth numbers and a 0.1% miss in the Consumer Price Index (CPI) would convince the central bankers to either raise rates by just 0.25%, make dovish noises about next year, or both. For some reason, many investors don’t believe Chair Powell and the other bankers when they plainly say that they will raise rates high enough to tamp down employment at the expense of the economy. When all else fails, go back to rule number one: Don’t ﬁght the Fed.
Inﬂation Slows From 7.7% to 7.1%, Missing 7.2% Expectation… The CPI dipped a bit more than anticipated as prices in several sectors, including energy, fell.
What it means— Inﬂation is down 2% from the peak of 9.1% in June. Falling to just over 7% isn’t the same as closing in on the Fed’s 2% target. Even though used-car prices, energy, and goods prices are lower, food prices and shelter costs are higher, as are service costs. And then there are the things the Fed can’t affect through interest rates, such as the energy picture around the globe and the potential supply chain snarls in China. If these external factors loom large in prices and the Fed takes a hard stance, we can expect long rates to turn up again and for consumer borrowing to tank. That might happen in the early days of winter, but we’re likely to see the economy soften in the early days of spring, which might make the Fed sit more dovish before mid-year. It will all come back to employment.
Initial Jobless Claims Fall From 231,000 to 211,000… Continuing claims remained steady at 1.67 million.
What it means— And right on cue, the U.S. government reported that jobless claims remain low and continuing claims aren’t rising to alarming numbers. In short, just about everyone who wants a job can ﬁnd one, and the Federal Reserve thinks that’s a problem. Unless large companies start laying off thousands of people at year-end, the employment picture won’t change much between here and the January/February Fed meeting. Expect more soft employment news in February.
Retail Sales Slipped 0.6% in November After Rising 1.3% in October… Retail sales less autos and gasoline fell only 0.2% last month.
What it means— Earnings aren’t keeping up with inﬂation, and yet consumers are trying to keep up with spending. Over the last year, earnings have gone up around 5%, but spending is up 6.5% and inﬂation is up 7.1%. It will be interesting to see what happens with autos as more inventory makes it to dealerships. Consumers will have more choices among models but will be hit with higher ﬁnancing costs. This might not work out so well for the carmakers who are counting on big proﬁts to fund their electric dreams. While sales fell at home centers, department stores, and others, sales continue to rise at bars, up 0.9% last month. Apparently, as long as we’re making money, we’ll meet up at the bar, even if it’s to complain about high prices and small raises.
The U.S. Dollar is Falling and Gold Is Rebounding… The U.S. Dollar Index peaked around $114.00 this summer and now sits at $104.50. Gold fell from more than $2,000 in March to around $1,650 this fall and now sits around $1,800.
What it means— When the Fed was in front of other central banks in raising rates this year and the world was unsettled as to what the war in Ukraine might look like, the buck was both a high-yield investment and a safe haven. Those things are still true, although not to the extreme they were in previous months. The problem is ﬁguring out what comes next. While the ECB and Bank of England are catching up, there’s not a lot people can do about the dollar being a safe haven. If China stumbles, Russia launches a big offensive, or developing nations crumble under the weight of their dollar debts, investors will rush back into the dollar. Investors who buy gold might consider picking up some here at relative low point, but don’t be surprised if it falls again.
Northeastern University Installs Heat Sensors Under Desks, Aimed at Students… Students came into class the following morning to ﬁnd the new devices aimed at their laps. When asked, the university said the sensors are part of an occupancy monitoring system, and since the sensors can’t tell one person from another or a person from another object, it did not have to inform students or get their consent. The students, who are part of the engineering wing that houses the Cybersecurity and Privacy Institute, didn’t accept that answer. Over the following days, they removed the sensors.
Data supplied by HS Dent Research
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