Fed Considers Slowing Rate Increases, Guides Higher Rates for Longer

Barry Adams
23 Nov, 2022
New York City

Market indexes closed higher for the second day in a row and stocks picked up more gains after the release of the FOMC statement. 

Policymakers debated the future course of rate increases and many committee members noted the lag between successive rate hikes and its impact on the broader economy. 

To achieve the price stability and bring inflation down to 2% rate, members noted a slower pace of rate increase may allow the committee to judge the impact of recent rate increases on the economy. 

However, some committee members also noted rates are not sufficiently restrictive to fully understand the impact of high rates in receding inflationary forces. 

But policy makers also signaled rates are still not sufficiently restrictive and inflation forces have not abated despite multiple rate hikes. 

"With inflation showing little sign thus far of abating, and with supply and demand imbalances in the economy persisting, their assessment of the ultimate level of the federal funds rate that would be necessary to achieve the Committee's goals was somewhat higher than they had previously expected," a number of participants noted. 

"A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate. A slower pace in these circumstances would better allow the Committee to assess progress toward its goals of maximum employment and price stability. 

The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important. 

A few participants commented that slowing the pace of increase could reduce the risk of instability in the financial system. A few other participants noted that, before slowing the pace of policy rate increases, it could be advantageous to wait until the stance of policy was more clearly in restrictive territory and there were more concrete signs that inflation pressures were receding significantly." the FOMC statement noted. 

In commodities markets, crude oil prices slid on the demand worries. 

Demand from China is likely to remain depressed after Covid infections surged in the second largest economy and local authorities imposed stringent lockdowns in several cities including parts of Beijing. 

Investors also reviewed the recent price cap announcements from G7 Group on Russian oil but many traders questioned the effectiveness of these sanctions. 

The S&P 500 index inched up 0.6% to 4,027.26 and the Nasdaq Composite index advanced 1.1% to 11,285.32. 

Crude oil declined $3.59 to $77.38 a barrel and natural gas added 51 cents to $7.29 a thermal unit. 

The yield on 2-year U.S. Treasury notes traded at 4.48%, 10-year Treasury notes eased to 3.69% and 30-year bonds inched lower to 3.73%. 

 

Durable Goods Orders Rise 

Durable goods orders rose 1% in October from September when orders rose downwardly revised 0.3%, the U.S. Census Bureau reported Wednesday. 

New orders jumped 10.9% from a year ago. 

 The orders rose the most in four months and the orders data are not adjusted for inflation. 

Volatile transportation orders gained 2.1% and military orders jumped 21.7%. 

Excluding transportation, orders increased 0.5% and excluding defense, new orders rose 0.8%, on a monthly basis and from a year ago rose 7.3% and 11.0% respectively. 

October shipments increased 0.4% from the previous month and jumped 9.7% from a year ago.  

 

New Home Sales Unexpectedly Rise In October

New home sales rose 7.5% in October from the previous month to an annual pace of 632,000 units and September sales were revised to 588,000 units.  

New home sales fell 5.8% from the 671,000 rate a year ago. 

Home sales in the Northeast soared 45.7% to 51,000 and in the South increased 16% to 399,000, outpacing the 34.2% decline to 50,000 in the Midwest and 0.8% drop to 132,000 in the West.  

The media home price increased to $397,000 and the average home price increased to $544,000. 

The seasonally-adjusted estimate of new houses for sale at the end of October was 470,000, representing a  supply of 8.9 months at the current sales rate.

 

Weekly Jobless Claims Up 

Initial jobless claims for the week ending November 19 increased to 240,00, the Department of Labor reported Wednesday. 

Continuing claims also increased to 1.551 million, highest since the first week in March.  

 

Stock Movers 

Autodesk Inc fell 5.6% to $197.16 after the architectural and engineering software developer fell short of expectations for its annual outlook. 

Autodesk said third quarter revenue increased 14% to $1.2 billion and net income rose to $198 million from $137 million or 91 cents from 62 cents a year ago.

HP Inc gained 1.1% to $29.71 after the company reported a less-than-expected decline in its latest quarterly sales. 

HP said fiscal fourth quarter revenue fell 11.2% to $14.8 billion and net income fell to breakeven from $3.1 billion or $2.71 per share a year ago.

HP said the company plans to cut global staff between 4,000 and 6,000 over the next three years.

Nordstrom Inc declined 5.9% to $21.32 after the luxury retailer reported weaker-than-expected quarterly results. 

Nordstrom third quarter revenue eased 2.9% to $3.5 billion and swung to a net loss of $20 m from a profit of $64 m or 13 cents from 39 cents a year ago.