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As expected at the November 2nd meeting, the Federal Open Market Committee (FOMC) raised the fed funds target rate by 75 basis points for the fourth consecutive time to a range of 3.75 – 4.00%, the highest level since 2008. The statement was initially perceived by the market as dovish, with the possibility of slowing the pace of rate hikes as soon as December or February. However, as the press conference unfolded, a more hawkish tone became evident. Fed Chair Powell indicated that the Fed has “a ways to go” with rate hikes to combat persistently high inflation, and that it is “premature to be thinking about” pausing. He reiterated that the risks of pausing too soon outweigh the risks of slower economic growth. He commented that rates would likely reach higher levels than projected and that policy would need to remain restrictive for some time. The Fed acknowledged the cumulative tightening of monetary policy and the lag in its effects on inflation and the economy. There was no change to the pace of balance sheet reduction, which is expected to continue at a pace of approximately $95 billion per month.

Financial markets remain volatile as inflation data continues to point toward further increases in interest rates by global central banks. This week, companies continued to report third quarter results with several firms reporting positive earnings surprises. However, on a year-over-year basis, companies in the S&P 500 are reporting their lowest earnings growth since the third quarter of 2020. The effects of higher inflation are apparent in overall corporate profits thus far.

At the top of global news this week, the United Kingdom’s Prime Minister Liz Truss announced her resignation as the rapidly expanding chaos surrounding her government proved too much of a burden to effectively lead the UK out of the political and financial morass in which it finds itself. Following credibility-sapping U-turns on September’s mini-budget, enforced cabinet reshuffles, and plunging personal and party opinion poll readings, Thursday’s statement of resignation came as little surprise to financial markets. Initial reaction to the news was mildly positive with gilt yields slightly lower and the pound a little firmer. Key for financial markets is whether Conservative MPs can unite sufficiently to agree on a new leader and provide some stabilization for the world’s sixth largest economy.