October 13, 2022
By Scott Wohlers
Both recent measures of inflation were reported this past week. Unfortunately, they were both higher than expected. Cut through all the noise, then the numbers do show that inflation is declining, but only slowly and modestly. The stock and bond markets reacted immediately. Interest rates jumped up and stocks traded down.
Step back and one can see that there has been progress but not quickly enough. Future Fed Fund rate hikes are a given. Expect another ¾ percent raise later this month and probably at least a ½ percent in December. This has already been largely baked into market expectations. What has not been factored in is how much further policy action may have to go.
Investors are gradually getting used to higher interest rates. After all, we have had good, healthy markets with interest rates much higher than this. It is just that so many investors got spoiled by cheap, almost free, money. As a result, too many made decisions counting on rates staying low. It is about time that cash had value and savings could be rewarded. Having a cost, the use of money will be more carefully considered.
All investors, business people, and the public are adjusting to the new realities. It just takes time. The result will be a sounder economy and stock and bond markets that are based upon sounder fundamentals. That day is not far off; there are positive signs coming from market action. Stay steady my friends.
The Lonely Bull
