Dow dropped 317, but advancers over decliners 3-2 & NAZ eased back 4. The MLP index stayed near 228 & the REIT index was slightly lower to 392. Junk bond funds rose & Treasuries were heavily purchased, driving down Treasury yields. Oil went up 2+ to the 82s & gold soared 52 to 1812.
AMJ (Alerian MLP index tracking fund)
Federal Reserve Chair Jerome Powell signaled the central bank will slow its interest rate increases at its meeting next month, but stressed that policymakers have more work to do in order to crush stubbornly high inflation. "The time for moderating the pace of rate increases may come as soon as the December meeting," Powell said. "Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level." Still, he noted that "ongoing increases will be appropriate" & stressed that the focus on rate hike speed is less important than the question of how long rates should be held in restrictive territory. Powell said rates are likely to reach a "somewhat higher" level than policymakers initially forecast in Sep, when they projected a median rate of 4.6% in 2023. The Fed will release updated projections at the conclusion of its Dec meeting. Although he acknowledged that inflation has shown early signs of cooling, consumer prices rose 7.7% in Oct from the previous year, the slowest pace since Jan. Powell pushed back against any assumptions that inflation will continue to moderate. "It will take substantially more evidence to give comfort that inflation is actually declining. The truth is that the path ahead for inflation remains highly uncertain," he said, adding: "Despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation." With inflation remaining stubbornly high despite the most aggressive rate hikes since the 1980s, traders are increasingly convinced the Fed will trigger a recession sometime in the next 12 months. However, Powell said a soft landing, "softish" landing, remains "very plausible" & "still achievable," though he admitted the path to such an outcome is narrowing. "We think that slowing down at this point is a good way to balance the risks," he added.
Fed officials give new update on interest rates as Americans struggle
Railroad unions that opposed a labor agreement brokered by the Biden administration are pressing the Senate to amend that deal to include 7 paid sick days for rail workers after the House just barely agreed to that addition in a narrow vote. The House easily passed legislation yesterday to implement the labor deal that some unions rejected, a move that will require all unions to abide by that agreement & make it illegal for them to strike. Dozens of Reps joined Dems in that vote to mandate the labor deal, which would retroactively give rail workers a 24% pay raise & boost their health care benefits. Unions still opposed to that deal are also seeking more time off for health reasons. In a nod to that demand, the House also passed legislation tweaking the deal to give them 7 paid sick days. But that vote was much closer, 221-207, & just 3 Reps supported that language. That has unions worried that Reps may not support language on sick days & that it may not get the 60 votes needed to pass the Senate. While the Senate is expected to pass the main agreement, senators yesterday offered no indication how the separate vote might go on sick leave. As a result, unions are working overtime to lobby the Senate. "We absolutely are calling every Senate office," Clark Ballew, communications director for the Brotherhood of Maintenance of Way Employees Division of the Intl Brotherhood of Teamsters (BMWED), said. "All 23,000 of our members are calling their U.S. senators to urge them and implore them to add sick leave to this contract."
Railroad unions press Senate on issue that barely passed the House
Higher than expected inflation & elevated interest rates will lead to slow economic growth, reduced purchasing power for families & larger budget deficits for the federal gov in 2023 & will likely lead to at least one qtr of negative growth next year, the Congressional Budget Office (CBO) predicted this week. The CBO said in a Nov 30 letter to Sen Steve Daines that its most recent projections are worse than what it published in May, when the Federal Reserve had just begun to raise rates to tame inflation levels that have not been seen in 40 years. "Higher interest rates, higher inflation, and slower economic growth lead to less purchasing power for households and increased deficits for the federal government," the CBO said. The CBO stopped short of using the word "recession" to describe 2023, but it did acknowledge that GDP adjusted to adjust for higher inflation would likely range from -2.0% to 1.8%. It said that "at least one quarter of negative real GDP growth between now & the end of 2023 is likely." The CBO said growth would pick up in 2024 "as the economy recovers." However, for the next year, higher interest rates are expected to act as an obstacle to growth just as they did in 2022. "In particular, the federal funds rate — the rate that financial institutions charge each other for overnight loans — is likely to be greater in 2023 and 2024 than, respectively, the 2.4% and 2.6% estimated most recently for the fourth quarters of those years," CBO told Daines. "The revisions stem mainly from greater increases in 2022 in the federal funds rate set by the Federal Reserve and in inflation than CBO had projected." It said household purchasing power has fallen about $5500 in 2022 because of inflation, while household income has only increased about $3000. The CBO added that if interest rates remain elevated over the next 2 years, that can be expected to increase the costs of buying houses & cars, & will weaken the demand for workers in industries such as residential construction. Slower growth & elevated interest rates will also mostly likely lead to higher federal budget deficits & debt. CBO simulations based on updated economic data indicate budget deficits in 2023 running higher by $200-300B &, & even more in 2024.
Slower economic growth expected in 2023 as high inflation plagues US households
The threat of a railroad strike along with the gloomy projection by the CBO for 2023 is driving heavy demand for safe haven assets, i.e. gold & Treasuries.
Dow Jones Industrials
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