Week In Review
On Wednesday the minutes from the Fed's meeting earlier this month were released. The Fed has been raising interest rates since March this year, and the last 4 increases were by 0.75%. With the Fed set to meet in just a little more than 2 weeks, the minutes from the November 1-2 meeting show that a majority of Fed officials now support slowing the rate of future increases. The CME FedWatch Tool has the probability of a 0.5% increase at more than 75%.
What does all of this mean? Perhaps it suggests that we're nearing the end of this current rate hike cycle. We're not there yet, but the CME FedWatch Tool suggests the highest probability for interest rates peaking at around 5% by the summer of 2023. That would mean we get a 0.5% increase next month, and a few more increases in the first half of the year. The labor market continues to show resiliency, but the Fed is determined to bring down inflation in the services sector.
The markets traded higher in a holiday-shortened week. The S&P 500 finished Thanksgiving week up by 1.5%. Looking ahead to this week, we have a few companies reporting earnings, but the vast majority of the companies that make up the S&P 500 have already reported, with most of those beating expectations. We'll also have the Fed's preferred inflation indicator, the Personal Consumption Expenditures index, out on Thursday, which will hopefully confirm what we saw recently in the CPI and PPI, which is that inflation is continuing to cool off.
On the year, the S&P 500 is still down by 15%, but is up by 12% from the mid-October lows.