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Richard Moody, Alan McKnight, and Brandon Thurber

Regions Bank’s Richard Moody, Alan McKnight and Brandon Thurber.

Category: Insights

Markets React to the Latest Federal Reserve Moves

Regions Bank’s Alan McKnight, Richard Moody and Brandon Thurber share their insights on the latest move from the Federal Reserve.

By Dana Obrist | September 22, 2022

In a widely anticipated move by the Federal Open Market Committee (FOMC) yesterday the Fed funds rate was once again increased by 75 basis points. Regions Bank’s Chief Economist Richard Moody, Chief Investment Officer Alan McKnight and Chief Market Strategist Brandon Thurber reflect on this latest move.

“I remain in the camp that the Fed will maintain their resolve and raise rates again at the final two meetings of the year, and then not pivot to a reduction in rates for an indefinite period,” McKnight said following the news. “Otherwise, the FOMC runs the risk of looking like ‘all hat and no cattle’ to the markets.”

Unlike the July rate increase, the markets reacted less favorably on Wednesday afternoon as the Federal Reserve signals there is still room for more increases in the ongoing battle against rising inflation. Originally up 300 points, the Dow swung dramatically to the negative, seeing a pullback of more 500 points at market close.

“I think the market is reacting to the very clear resolve that the chairman expressed during the press conference about getting inflation down even if it means a more material slowdown in the economy and on the unemployment front,” McKnight said. “The market had been hopeful that the FOMC would be a bit more restrained in their language even if they got to the same level on rates this year.”

Additionally, McKnight believes operating margins will continue to come under pressure as the recent Consumer Price Index (CPI) and Producer Price Index (PPI) releases reinforce that costs will remain high and companies will struggle to completely pass along these higher costs to customers.

“As operating margins decline, valuations for stocks will come under pressure, which will cause continued volatility and lower expected returns,” said McKnight. “I envision a scenario where both earnings estimates and the multiple paid for those earnings come down in lockstep.”

Thurber noted that investors now have little choice but to expect the Fed funds rate to rise to a restrictive level and for the Fed to maintain that level for longer than previously expected.

“This realization pushed short-term Treasury yields higher and generated substantial weakness in risk assets after the Committee’s September meeting,” Thurber said. “This dynamic may weigh on risk appetite over coming quarters until the Fed hints at a pause in rate hikes.”

Following yesterday’s meeting, Moody shared his thoughts in his latest economic commentary piece: September FOMC Meeting: FOMC Signals Its Resolve To Stay The Course.

“In his post-meeting press conference, Chairman Powell stressed that the FOMC is ‘strongly resolved’ to bring inflation back down to 2.0 percent and will ‘keep at it’ until that goal is attained,” Moody noted in the report.

Moody also highlighted Chairman Powell’s comments that there is “no painless way” to get inflation down, and again stressed that the costs of prematurely loosening policy would be worse than the costs of the FOMC remaining on its present path.

“Not exactly inspiring, and more than a bit late, but at this point the right message to send,” Moody concluded.

For more on the potential market impacts of this week’s FOMC meeting and rate increase, join Moody, McKnight, and Thurber tomorrow for the Regions Weekly Markets Update Call at 11 a.m. Central.

To catch up on previous week’s calls, 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.

This week’s Weekly Market Update will be presented live at 11:00 CT / 12:00 ET on Friday as part of an ongoing weekly series hosted by Regions to share the latest insights on the markets.

Participants may send questions in advance of the call to [email protected] so the panelists can 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.

For additional information and link to join this and upcoming calls: Regions Bank Weekly Market Update Calls – WebEx.

 

The commentary expressed during this call are statements of the Speaker(s) opinion, are intended only for informational purposes, and are not formal or binding opinions of Regions Bank, its parent company Regions Financial Corporation, or its subsidiaries. This content is solely for information and educational purposes, and nothing contained in this presentation constitutes an offer or solicitation to purchase any security, the recommendation of any particular security or strategy or a complete analysis of any security, company or industry or constitutes tax, accounting or legal advice. Information is based on sources believed to be reliable but is not guaranteed as to accuracy. Commentary and opinions provided reflect the judgment of the Speaker(s) as of the date of this presentation and are subject to change without notice. Certain sections of this presentation may contain forward-looking statements based upon the reasonable expectations, estimates, projections and assumptions of the Speaker(s), but forward-looking statements are not guarantees of future performance and involve risks and uncertainties, which are difficult to predict. Investment ideas and strategies presented may not be suitable for all investors. No responsibility or liability is assumed for any loss that may directly or indirectly result from use of information, commentary or opinions. This information is intended for the use of Regions’ clients and associates and is not intended for further distribution.
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