Inflation And The Fed At Odds
By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group
Both Equities and Fixed Income have started off the year with a bang. Equities were higher last week and the economic data showed improvement. The last Consumer Price Index measurement for 2022 showed a 6th consecutive month of declines last week. In fact, the current decline in CPI on a year-over-year basis is the 3rd fastest decline from peak after 6 months since 1950. This news sent probabilities for a 50 basis point rate hike plummeting and the probability for a 25 basis point hike to more than 93%. While seeming to disregard the decline in inflation, the Fed continues to leave the door open for further rate hikes. So, despite the good news on inflation, consumers still may have to deal with higher interest rates for longer.
The preliminary reading on Consumer Sentiment for January hit the highest mark in nearly 8 months. The TED Spread, a measurement of risk in the market, had been range bound for the last 4 months and finally broke below that pattern last week, potentially signifying a decline in risk. History shows the 3rd year of a Presidential cycle, i.e., 2023, is also good news for equities as it has provided positive returns almost 89% of the time, with the average return being +16.78%. There are six Fed speakers this week, so all bets are off as to how the market will respond. The Fed has been adept at speaking out of both sides of their respective mouths.
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