Another Rate Hike As Expected

Another Rate Hike as Expected

Michelle Suzanne, Market Analyst


There were two major economic events on tap this week, but only one produced much reaction. The Fed meeting on Wednesday caused investors to raise their outlook for monetary policy tightening, pushing bond yields higher, while the labor market data, which has been highly anticipated was released on Friday and since this data was close to expectations it has had little influence on rates. As a result, mortgage rates rose this week. 

As expected, the Fed raised the federal funds rate by another 75 basis points on Wednesday to a target range of 3.75% to 4.00%, the highest level since January 2008. Initially, investors were encouraged because the meeting observed that the pace of future increases will take into account the long lag in the effects of monetary policy on economic activity, suggesting that the magnitude of future hikes may be smaller. However, Chair Powell later dampened the outlook during his press conference by saying that the peak federal funds rate needed to focus on controlling inflation. In other words, the pace of rate hikes may slow, but the total increase may be larger before the Fed is done.  Investors now expect that the federal funds rate will exceed 5.0% early in 2023, and may remain there most of the year. 



Against a consensus forecast of 205,000, the economy gained 261,000 jobs in October, the smallest monthly increase since December 2020.  The best performing sectors were leisure, hospitality, professional services, and health care.  The unemployment rate rose more than expected to 3.7% from 3.5%, which was the lowest level in decades.

Investors will be hoping for more specific Fed guidance on the pace of future rate hikes and bond portfolio reduction. The biggest economic report will be the CPI inflation data on Thursday.


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