Rate Hikes Are Rarely Good News, but This One Just Might Be

At its most recent meeting, the Federal Reserve raised interest rates by 0.25 percentage points. It was the Fed’s eighth rate hike in a row, but it’s smallest since last March 2022.

At the post-meeting press conference, Fed Chair Jerome Powell suggested: “the disinflationary process has started.” He pointed out that consumer inflation eased again in December 2022, the sixth straight month that prices showed a year-over-year slowdown.¹

Light at the End of the Tunnel?

While Powell acknowledged there was still more work for the Fed to do, the markets interpreted his comments as “dovish.”

Both stock and bond markets reacted positively to the news, adding to their strong performance since the start of the year.

Does this mean the bear market is over? It may be too early to tell. Corporate earnings are better than feared, but the 10-year and 2-year Treasury yield curves remain inverted. In the past, an inverted yield curve has been a sign that a recession may be on the horizon. Chairman Powell believes growth will slow, but the economy will avoid recession.²

Could the financial markets have already discounted a slowing economy? We know that stocks are forward-looking, so the market may be anticipating that Powell may be in the process of orchestrating a “soft landing.”

As we know, however, no one can predict the future. That’s why we’re here to help you handle whatever the markets throw at us, and our team remains focused on your goals.

As we get deeper into 2023, we will continue to review economic data and company reports to better understand emerging trends. I’ll gather the information and relay any updates that may affect your situation.

^{1 WSJ.com, February 1, 2023}

^{2 Fred.StLouisFed.org, February 1, 2023}

^{Stocks are represented by the S&P 500 Composite Index, an unmanaged index that is considered representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Bonds are represented by the 10-year U.S. Treasury bond, which is guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury bond prior to maturity, it may be worth more or less than the original price paid.}