Are The Federal Reserve’s Actions Working?

Nov 21, 2023


The Quick Take:

  • The actions of the Federal Reserve in raising interest rates appear to be working. Retail sales slowed in October. Slower growth in spending does not mean that spending has halted.
  • Inflation slowed once again last month, adding further credence to the Fed’s efforts. There’s room to go, but the trend remains intact to the downside.
  • The trend is also positive in the labor market. We’re seeing slower job growth and higher jobless claims. This may sound counterintuitive, but we do want to see a slowing labor market from the hot streak it’s been on.
  • The threat of a government shutdown has been postponed until January 2024. The noise around this will amplify, but no action should be taken on your plan or your strategies simply because of added hype on the potential for a short-lived shutdown.

Comments from the Investment Policy Committee:

  • October’s retail sales revealed a marginal decline of -0.1%, exceeding consensus forecasts. The monthly decline serves as a positive signal, suggesting a measured approach to curbing excessive spending without stifling overall consumption.
  • U.S. inflation broadly slowed in October, with headline consumer price inflation (CPI) falling to 3.2% year over year and core CPI decelerating to 4%. Weak producer price inflation and declining import prices further support the disinflation narrative.
  • Jobless claims have been trending higher in recent weeks, with continuing claims reaching the highest level in almost two years. Combined with moderating nonfarm payroll job gains and slower wage growth, this data indicates a durable normalization within the labor market.
  • Congress passed a stopgap funding bill, extending the status quo until early next year and averting the threat of a government shutdown until January 2024.
  • A marginal pullback in retail sales following robust summer consumption, combined with encouraging readings on inflation and steady normalization in the labor market, likely provides the Federal Reserve with evidence that its restrictive monetary policy is effectively reducing inflationary pressures.

Bottom Line: Against this macroeconomic backdrop, we maintain our conviction in a soft-landing outcome next year and adhere to our preference for equities over fixed income. However, the prospect for capital market volatility remains amid heightened geopolitical risks and the long and variable effects of restrictive monetary policy. Our Global Core allocations are strategically positioned to withstand volatility by employing effective diversification, targeted style class allocations, the partial downside protection offered by buffered notes, and the deployment of FLEX



By  Investment Policy Committee

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