Week in Review: September 23, 2022

Markets ended the week lower as the Federal Reserve raised rates by 0.75% for a third consecutive meeting in its ongoing effort to quell inflation. In a busy week for global central banks, within a 24-hour period, 16 central banks announced rate decisions. The Bank of England also raised rates by 0.50%. Notably, the Bank of Japan continued to refrain from raising rates, leaving its benchmark lending rate unchanged at -0.1%. Reflecting both the rate hike and the Fed’s updated forecast for rates in the future, the 2- and 10-Year U.S. Treasury yields ended the week at 4.20% and 3.69%, their highest levels since 2007 and 2011, respectively. A year ago, the 2-Year yield stood at just 0.29%.

In addition to raising rates, the Fed provided updated forecasts showing that it now expects the Fed Funds rate to end 2022 and 2023 at 4.4% and 4.6%, respectively, a full 1.0% and 0.8% higher than previously expected. Speaking after the meeting, Fed Chair Jay Powell reaffirmed the Fed’s commitment to fighting inflation, saying that it has the tools and the resolve to restore price stability. Responding to a question about the Fed’s ability to engineer a soft landing (i.e., bring down inflation without triggering a recession), Powell acknowledged that effecting such an outcome would be “very challenging.” He candidly added that “no one knows whether this process will lead to a recession or if so, how significant the recession would be.”

The combination of Powell’s hawkish comments, the Fed’s updated rate projections, and growing concerns about slowing corporate earnings contributed to the S&P 500’s second straight week of losses in excess of 4.5%.