Week in Review: November 25, 2022

Markets ended the holiday-shortened week higher, buoyed by the release of the Federal Reserve’s November Federal Open Market Committee (FOMC) meeting minutes. Markets seemed particularly pleased with the statement that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” Beyond that passage, however, the minutes revealed a high degree of uncertainty among participants on how the Fed’s fight against inflation will ultimately unfold.

Reflecting those uncertainties, the minutes noted that risks to the committee’s inflation outlook were to the “upside” while risks to the committee’s economic outlook were to the “downside.” In addition, participants noted that “a period of below-trend real GDP growth would be helpful” in restoring the supply and demand balance and reducing inflationary pressures. The minutes also made multiple references to the lagged effect of the Fed’s policy actions on economic activity and how those lags complicate the assessment of the Fed’s actions.

For the week ahead, two items worth watching are the potential for a U.S. rail strike and anti-Covid protests in China. U.S. rail workers are currently threatening to walk off the job by December 9 if certain conditions are not met. A strike would snarl U.S. supply chains and place upward pressure on inflation. In China, protests against the country’s strict zero-Covid policies erupted in multiple cities. Whether the protests will result in a relaxation of policies or simply trigger a harsh crackdown on protesters remains to be seen.