Morning Report: The Fed hikes rates again

Vital Statistics:

S&P futures3,730-37.75
Oil (WTI)88.51-1.52
10 year government bond yield 4.20%
30 year fixed rate mortgage 7.04%

Stocks are lower this morning after the Fed hiked rates yesterday. Bonds and MBS are down.

As expected, the Fed hiked rates by 75 basis points. The statement included language about the Fed taking into account lags and past rate hikes in order to assess the further course of monetary policy. In the immediate aftermath of the statement, stocks and bonds rallied on that statement as it seemed to indicate that the Fed was opening up the possibility of a pause in rate hikes.

The press conference poured cold water on that however, as Powell said it is “very premature” to be thinking about pausing and that “we have a ways to go on rates.” Stocks and bonds sold off for the rest of the day, and here we are this morning with the 10 year around 4.2%.

About the only positive was that Powell signaled that further rate hikes might be smaller. The December Fed Funds futures have a toss-up between 50 and 75 basis points. which would take us to about 4.5% on the Fed funds rate. Looking out to December of 2023, the futures see another 25 or 50 basis points of tightening in 2023.

Between now and December, we should get another two readings of the consumer price index and the PCE price index, so perhaps the data helps us out. I have to say I am utterly confused that the Fed would add the statement about taking into account lags and past hikes and then announce to the market that they are going to keep hiking. I mean, what’s the point of that statement? Seems strange, but that was one heck of a head fake to the stock and bond markets.

Productivity rose 0.3% in the third quarter, according to BLS. Output increased 2.8%, while hours worked increased 2.4%. Unit labor costs rose 3.5% as compensation rose 3.8% and productivity rose 0.3%. Lagging productivity has been an issue for a while, which has been contributing to inflation and lower standards of living.

Announced job cuts rose to nearly 30,000 in October, according to outplacement firm Challenger, Gray and Christmas. This was the highest level since February of 2021. Most of the cuts were in technology and the automotive sector. Construction jobs fell a we enter the seasonally slow period and are dealing with an affordability issue with housing. Despite the increase, initial jobless claims remain low at 217,000.

The services sector expanded in October, according to the ISM Services Index. That said, it decelerated from its September reading, indicating that the Fed’s rate hikes are beginning to have an effect. The one disappointment was that prices increased after 5 straight months of declines.

“Growth continues at a slower rate for the services sector, which has expanded for all but two of the last 153 months. The sector had a pullback in growth for the second consecutive month in October due to decreases in business activity, new orders and employment. Supplier deliveries continued to slow, at a faster rate in October. Based on comments from Business Survey Committee respondents, growth rates and business levels have cooled. There are still challenges in hiring qualified workers, and due to uncertainty regarding economic conditions, some companies are holding off on backfilling open positions. Supply chain and logistical issues persist but are not as encumbering as they were earlier in the year.”

28 Responses

  1. Brent, time to hang it up. The mortgage market is solely driven by racism.


    • because high prices couldn’t possibly be explained by subsidies, NIMBY-ism, social engineering via the housing market, or money printing. Doesn’t support the narrative.


    • Bankers and investors don’t care about money, or being rich. THEY ONLY WANT TO OPPRESS MINORITIES!!


      • that was always my pet peeve with the left and the CRA. These dipshits have never met a loan officer in their lives.

        They think loan officers are going to turn down a $15k commission because they don’t like the color of the borrower. Only an academic or a bureaucrat could be that obtuse.


    • I really question the long term wisdom of the left abandoning class-resentment almost completely and moving towards racial grievance for everything.


  2. More cowbell:

    With even more to come:

    “This editorial is the first in a series, “The Danger Within,” urging readers to understand the danger of extremist violence and possible solutions.”


    • “Over the past five years, incidents of political violence in the United States by right-wing extremists have soared. Few experts who track this type of violence believe things will get better anytime soon without concerted action. Domestic extremism is actually likely to worsen. The attack on Paul Pelosi, the husband of the speaker of the House of Representatives, was only the latest episode, and federal officials warn that the threat of violence could continue to escalate after the midterm elections.”

      “The embrace of conspiratorial and violent ideology and rhetoric by many Republican politicians during and after the Trump presidency, anti-government anger related to the pandemic, disinformation, cultural polarization, the ubiquity of guns and radicalized internet culture have all led to the current moment, and none of those trends are in retreat. Donald Trump was the first American president to rouse an armed mob that stormed the Capitol and threatened lawmakers. Taken together, these factors form a social scaffolding that allows for the kind of endemic political violence that can undo a democracy. Ours would not be the first.”

      The NYT has a lot of balls complaining about “misinformation” with these two whoppers in the first two paragraphs of the story.


      • If your main reason for being is to spread propaganda and misinformation in the service of the powerful, of course you’re going to complain about anything that deviates from that narrative as misinformation. It’s part of the strategery.


    • But they don’t mean extremist violence, they mean Republicans/Conservatives/Possibly Independents who question the official narrative or openly mock powerful people in a way that inspires lone wolfs to do violence.

      The “danger of extremist violence” is really about “the danger of the peasants voting the wrong way”.


  3. This will end well:


  4. Worth noting:

    “Why Democrats Are Losing Hispanic Voters

    The left has alienated America’s fastest-growing group of voters just when they were supposed to give the party a foolproof majority.

    By Tim Alberta
    November 3, 2022, 6 AM ET”


    “Hispanic Voters on the Eve of the 2022 Election
    Hispanic Voters Are Normie Voters and Normie Voters Aren’t Happy

    Ruy Teixeira”


    • I have a hard time being sanguine about the fact the guy cites the book that beget the Great Replacement Theory (that the left embraced) and then later slags off on Tucker Carlson for advancing “The Great Replacement Theory” as if (a) Demographics is Destiny isn’t exactly the Great Replacement Theory . . . and as if Tucker hasn’t himself pointed that out.

      This is what far-right fear merchants like Tucker Carlson fail to grasp: The immigrants demonized by his “Great Replacement” rhetoric are now, in some respects, likelier to vote Republican than the people they are supposedly replacing.)

      I’m guessing the author doesn’t spend a lot of time watching Carlson. He’s talked on more than one occasion about Hispanic votes flipping Republican.

      Trump was supposed to be uniquely unacceptable to minorities, and to Hispanics in particular, given his assessment of Mexicans as, among other things, “rapists.”

      And yet Hispanics apparently know Trump was talking about illegal immigrants, not Mexicans writ large, where as the author does not.


    • The Atlantic article is good. My guess is (a) the author has already been attacked for being a traitor for writing it and (b) most of the Democrats will ignore it or consider him and the people he’s writing about right wing cranks.


      • I’m surprised at only the passing mention of Latinx.


        • The Latinx thing is interesting. I get a sense they are easying up on that, trying to memory-hole it without every saying “okay, it was a bad idea”. I feel like maybe they are trying to let it just fade away?

          But some–the AOC folks–are convinced they can achieve and maintain perpetual control with only woke people, that all upcoming generations will be woke, so full-woke is fine and everybody who has any traditional values are all dinosaurs so fuck them, YOU’RE LATINX IF I SAY YOU’RE LATINX!


  5. The premortums continue for the midterms:

    “How Democrats Mishandled Crime

    The most effective issue for Republicans in this midterm is a result of Democratic elites failing to understand what their diverse base of working-class voters wants.

    by Stanley B. Greenberg

    November 3, 2022”


    • Watch the red wave turn into a trickle. I’m wonder if some of this is really about “if the Republicans on win 15 house seats and only 1 or two senate seats and maybe only one more governorship, then that’s really a VICTORY for Democrats and we can celebrate!” I feel like they are lowering the bar of expectations so anything that isn’t a complete disaster turns out to be GOOD NEWS for the Democrats in the post mortems.


    • “a barrage aided by Fox News dramatically increasing its crime reporting”

      How many Democrat voters are watching Fox? And also did they increase crime reporting as a political ploy, or because there was more engaging/unusual crimes being committed to report on?

      It stalled and reversed the momentum Democrats had gained with the Supreme Court decision on abortion, the January 6th hearings, the Justice Department search of Mar-a-Lago, and Democrats passing the Inflation Reduction Act.

      I think this is just wishcasting. Aside from Roe V. Wade getting overturned, I don’t anything of those were momentum-builders. They might have been popular with diehard Democrats who were always going to vote for Democrats, but independents and Republicans weren’t being moved by Mar-a-Lago or Jan 6th hearings or the Inflation Reduction Act.

      “but an effective one in labeling Democrats as “pro-crime.””

      That’s kind of a self-own in this case.

      But they should move as quickly as possible to change the subject, preferably to the cost of living, where Democrats have a real policy offer and pose a real electoral choice.

      But do they really? I followed the link and the answer is: no, they don’t, they have more wishcasting.

      Voters and our base hated the idea of defunding the police. So, virtually every Republican ad in 2020 depicted African American looters

      Because Republicans are racist. Jeeze, we get it.

      And they worried more about the rise in crime than the rise in police abuse.

      What demonstrable rise in police abuse? Where’s the data on that?


  6. A pithy summation:


Be kind, show respect, and all will be right with the world.

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