Federal Reserve Stays the Course

The Federal Reserve Open Committee met last week and right on cue announced plans to stay the course on the road to stabilized inflation by increasing the Federal Funds rate by another 0.75 percent. This came as no surprise to Alan McKnight, chief investment officer at Regions.

“Despite recent optimism, we remained skeptical that the Federal Reserve would reverse course on its previously communicated strategy to combat inflation via continued rate increases coupled with a reduction in its balance sheet,” said McKnight.

According to the press release from the Federal Reserve, recent indicators point to modest growth in spending and production, robust job gains and a low unemployment rate even while inflation remains elevated.

“Once the Fed reaches a normalized level of rates, we believe a pause in rate increases for an indefinite period is more likely than a pivot to monetary accommodation,” McKnight said. “The recent FOMC statement from November and press conference with Chairman Powell merely reinforced these beliefs.”

As McKnight reflected on the recent market activity, he noted that in the equities markets earnings season is nearing completion with clear indications of which companies are managing through the inflationary environment via price increases and cost management compared with companies that are feeling the pressure of higher input costs and wages with more limited pricing power.

Once the Fed reaches a normalized level of rates, we believe a pause in rate increases for an indefinite period is more likely than a pivot to monetary accommodation.
Alan McKnight, Regions Chief Investment Officer

“This bifurcation of haves and have nots is likely to continue through 2023 with the haves maintaining operating margins and higher multiples compared to the have nots experiencing margin compression and lower valuations,” McKnight shared. “The international equity markets, both developed and emerging, remain under pressure due to a broader theme of de-globalization, higher inflation and elevated geopolitical tensions.”

Additionally, McKnight appeared on Monday’s edition of The Claman Countdown alongside TS Trading’s Chief Strategist, where they spoke with Fox Business host Liz Claman about the state of the technology sector in the markets and the latest out of the bond market in the wake of the recent Fed moves.

To access past Weekly Market Update discussions, visit Regions’ Weekly Market Update recordings. These events are hosted by Regions’ Wealth Management team. Additional economic commentary and resources may be found on Regions.com.

There will not be a Weekly Market Update this week due to the Veterans Day holiday. The calls will resume, presented live at 11 a.m. CT / noon. ET on Friday, Nov. 18. Participants may send questions in advance of the call to PMsupport@regions.com so the panelists may address these questions during the live call. Participants are encouraged to dial-in or join via WebEx 10-15 minutes in advance of the start time.

Check out the remaining calendar of Weekly Market Update calls for 2022. Please note the final Weekly Market Update call for this year will take place on Friday, Dec. 16.

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