Week in Review: September 23, 2022

September 23, 2022

Recap & Commentary

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%.

Economic Commentary

Housing data showed the ongoing effects of higher mortgage rates, with existing home sales falling in August for a seventh consecutive month. Compared to a year ago, sales were down 20%. Prices also declined, with the median price slipping to $389.5K, just two months after reaching a record high of  $413.8K. Bucking the decline in existing home sales, new home starts jumped 12% in August after declining 11% in July. The notoriously volatile series benefitted from a surge in multi-family construction while single-family housing starts rose just 3.4%. In a sign that building activity is likely to slow further in the months ahead, permits fell by 10%, to their lowest level since June 2020.

Data released by industry group S&P Global showed improved manufacturing and services sector activity in September. Combined, overall activity declined for a third consecutive month, but at a slower pace than in August. In another positive sign, pricing pressures continued to abate, slowing to their lowest level since early 2021, though they remain elevated on an absolute basis.

Weekly jobless claims rose by a modest 5K to 213K. While the Fed has said it expects its actions to result in economic “pain” consisting of higher unemployment, the labor market, thus far, has remained very resilient.

Of Note

In a surprise move, the UK’s new government unveiled a stimulus plan combining the largest tax cuts in 50 years with massive borrowing increases. The plan diverged significantly from recent fiscal policy and resulted in the British pound falling to $1.09, its lowest level since 1985.

S&P 500-4.7%
Small Caps-6.6%
Intl. Developed-5.6%
Intl. Emerging-4.1%
U.S. Bond Market-1.6%
10-Year Treas. Yield3.69%
Fed Funds 3% – 3.25%
WTI Oil ($/bl)$79
Gold ($/oz)$1,652

The Week Ahead

  • Durable Goods Orders
  • New Home Sales
  • Pending Home Sales
  • PCE Inflation
  • Consumer Confidence
  • Weekly Jobless Claims


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