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We had a very, as should always be expected, volatile week. The Fed raised rates by 75bps – but this should come as no surprise.
The markets began to rally when the expected rate hike took place and Powell began his speech by discussing lower future hikes. However, the market quickly turned when he began to answer questions. He was aggressively focused on his battle against inflation and mentioned how the Fed funding rate can get to 5%.
On Friday, unemployment numbers came out. The market was expecting 3.6% unemployment and the report came in a tick higher at 3.7%. As I mentioned earlier, we are in a market where poor economic reports will fuel rallies due to the expectation that the Fed will need to pivot from their hawkish policies sooner rather than later.
Here is a list of noteworthy layoffs this year. (Note: some of these are global companies and may not just be American employees laid off)
- Twitter: 50% of workforce since Elon Musk takeover
- Zillow: 300 employees or about 5% of workforce
- Peloton: 20% back in February and another 12% in October
- Snapchat: 20% of workforce
- Sound Cloud: 20% of workforce
- Netflix: 2% of workforce
- Carvana: 2,500 employees
- Coinbase: 18% of workforce
- Compass: 10% of workforce
- Redfin: 8% of workforce
- Docusign: 9% of workforce
- Robinhood: 9% of workforce
The list continues along with a lot of companies announcing hiring freezes – which if things worsen you can predict layoffs at those companies to take place as well. You can easily google “US corporate layoffs 2022” to find more info on this topic.
The Fed uses CPI and Employment data as their key barometer to determine their current monetary policy. Jobs have been going strong but this latest data, along with what’s going on around the world, suggests that we may be in for a rude awakening.
With the CPI data, they will be looking for a trend reversal with month over month data. If we are able to get 2-3 months of MoM declinations, it should be enough to take the foot off the accelerator.
As I’ve said before, if we see cracks in the financial system domestically (Financial institutions about to default on debt, for example) you can expect the Fed to step in and provide liquidity aka quantitative easing.
We have another very busy week ahead of us with the midterm elections and CPI data leading the charge.
Monday
- Cleveland Fed President Mester (hawk) and Boston Fed President Collins (neutral) speak about women in economics
- Richmond Fed President Tom Barkin speaks on inflation (hawk)
Tuesday
Wednesday
- New York Fed President Williams speaks at Swiss National Bank Event (hawk)
- Richmond Fed President Tom Barkin speaks on economic outlook (hawk)
Thursday
- CPI Data
- Fed Gov Waller speaks on central bank digital currencies (hawk)
- Initial and Continuing Jobless Claims
- Federal Budget
Friday
- Veteran’s Day
- Philadelphia Fed President Harker speaks on economic outlook (hawk)
- Dallas Fed President Logan speaks on energy and the economy (hawk)
- Cleveland Fed President Mester speaks (hawk)
- Kansas City Fed President George speaks (neutral)
- New York Fed President Williams speaks (neutral)
Here is how the Fed members are measured today (Hawk = for raising rates, quantitative tightening. Dove = for cutting rates, quantitative easing)
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