Could an Economic Recovery be our Gift for 2023?

December 19, 2022

It is the season of giving — and this past week, we were gifted positive inflation news. The November Consumer Price Index (CPI) grew 7.1% from a year ago, down from 7.7% in October. CPI moderated more than anticipated for the second month in a row, which is welcome news.

Inflation continues to ease since peaking in June at 9.1%, as the Federal Reserve hikes rates and supply chain issues improve. We still have a long way to go before we reach the 2% inflation target, so the Federal Reserve is poised to continue its rate hiking cycle.

Fed Releases 2023 Projections

On Wednesday, the Federal Open Market Committee (FOMC) raised rates by 0.50% to a new range of 4.25-4.5%. This was a smaller rate hike than the 0.75% hikes from other recent meetings. The Fed also released updated economic and interest rate projections. The median projected federal funds rate for 2023 is now 5.1%, representing another 0.50% to 0.75% of rate hikes next year. Once The Fed reaches this point in the first half of the year, it will likely pause to monitor the impacts on inflation.

Of course, the future rate path is subject to change, as the Fed remains dependent on incoming data.

Still Seeking That 2% Target

Following the policy meeting, Federal Reserve Chairman Jerome Powell held a press conference. Powell stated that we still have some ways to go to get to the peak federal funds rate as shown by the Fed’s projections. He also downplayed the likelihood of the Federal Reserve easing rates next year, as they need to see substantial evidence that inflation is slowing to the 2% target.

The markets show a differing opinion, pricing in rate cuts in the second half of the year. The true outcome is up in the air; much can change over the course of a year.

Long-Term Focus Prevails

This has been a challenging year for investors. We expect heightened volatility to continue into 2023. However, it is important to remain diligent and focused on long-term success. Portfolios under our care will remain fully invested and broadly diversified.

We would like to wish everyone a happy holidays. Travel safely and enjoy time spent with loved ones. If you would like to discuss your financial goals heading into 2023,  reach out to an advisor today.  Your success matters to us!