Stock Market Weekly Outlook
Stock markets enter a holiday shortened week with a cautious tone. Wall Street ended last week with a positive gain on Friday but it was a down week overall. This week investors will keen in on Wednesday’s release of the widely watched FOMC Meeting Minutes. Investors want to hear about how the Fed forecasts the peak spot to where the benchmark interest rate — the federal funds rate — will come to rest before the central bank begins trimming it back (the Terminal Rate).
Based on the latest FOMC Meeting Minutes released in October, the Fed Committee is steadfast in its focus to bring inflation back down towards the long term trend of 2%. We took a look at the last release of the FOMC Meeting Minutes and want to highlight the following;
- A number of participants commented that a wage–price spiral had not yet developed but cited its possible emergence as a risk.
- In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives. Participants judged that the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability. Many participants noted that, with inflation well above the Committee’s 2 percent objective and showing little sign so far of abating, and with supply and demand imbalances in the economy continuing, they had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the Committee’s goal.
- Most participants remarked that, although some interest-sensitive categories of spending—such as housing and business fixed investment—had already started to respond to the tightening of financial conditions, a sizeable portion of economic activity had yet to display much response. They noted also that inflation had not yet responded appreciably to policy tightening and that a significant reduction in inflation would likely lag that of aggregate demand.
- These policy moves would therefore prevent the far greater economic pain associated with entrenched high inflation, including the even tighter policy and more severe restraint on economic activity that would then be needed to restore price stability.
We believe the FOMC meeting minutes from the Nov 1-2 policy meeting will highlight the same message and not give much credence to the latest CPI and PPI data which has shown a slight decrease in the monthly trend. As such we would caution investors towards getting too bullish before the next FOMC policy meeting in December. While we will get one more CPI data release prior to that meeting we see this new set of FOMC Meeting Minutes as a key indicator to what the Fed will do over the next 2-4 policy meetings.