Survey Monday
Is the Federal Reserve done with hiking interest rates in 2023/24?
· Yes
· No
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Policy guidance
With the Federal Open Market Committee widely expected to keep rates unchanged at its meeting on Wednesday, investors and economists will keep their eyes trained on the policymakers’ economic projections that are released at the same time. In addition, they’ll be listening for any hints about the likely path at following Fed meetings, especially the last one of the year on Dec. 12-13. Nearly all Fed officials have been repeating Fed Chair Jerome Powell’s mantra of “higher for longer,” but the summary of economic projections (“SEP”) will offer a view of how high the central bank may go and for how long.
Rate path probabilities: Keep in mind that the projections do not represent decisions on a rate path. Rather, they reflect individual Fed members’ expectations of how the economy and policy will unfold. In the June 2023 SEP, the federal funds rate median projection was 5.5% for the end of 2023 and 4.6% for the end of 2024. Its rate currently stands at 5.25%-5.50%. “In the Fed’s dot plot, what you’re likely to see going into 2024 is fewer rate cuts, which has sort of been priced into the market at this point, but I don’t think it has flowed through to investors’ expectations of where interest rates will be,” said Wakefield Asset Management Partner Greg Brittain in an interview with Seeking Alpha.
Overall, though, the economy has remained pretty resilient. A hard landing seems to be out of the cards for now, but that can be difficult to predict over the long term, especially if the Fed is late to react to economic conditions (remember the infamous “transitory” call from 2022?). As a result, the central bank’s dot plot for next year might be more cautious as it continues to play defense on inflation and resist signaling anything that might lead financial markets to get ahead of the Fed on rate cuts.
Wild cards to watch: Uncertainty always looms over the Fed’s economic outlook, but Powell may emphasize that fact even more during his post-decision press conference given the recent auto workers’ strike and a potential government shutdown. The latter possibility may worry the data-dependent central bank even more, as government agencies would stop issuing economic reports during a shutdown. The September jobs report is scheduled to come out on Oct. 6, days after the government’s fiscal 2023 ends on Sept. 30. Take the WSB survey. (28 comments)
IPO fever
Arm Holdings’ (ARM) stellar trading debut has injected fresh optimism in the IPO market, as the first U.S. technology unicorns in nearly two years have both boosted their pricing ranges. Instacart (CART) priced its IPO at $28-$30 a share, as the grocery delivery firm aims to raise as much as $660M, valuing it at $9.3B-$9.9B. Klaviyo (KVYO), a marketing automation company, also raised its IPO price range to $27-$29 apiece, targeting to raise $557M and valuing the firm at around $8.7B. Five IPOs raised a combined $5.4B last week, led by Arm’s blockbuster IPO, according to SA analyst Renaissance Capital IPO Research. (11 comments)
Washington involved
The United Auto Workers’ strike against Detroit’s Big 3 automakers has entered its fourth day, garnering support from President Joe Biden and Democratic politicians, although negotiations remain deadlocked. A team from the White House, who has already been engaging with the parties by phone, will reach Detroit early this week to mediate negotiations. The strike is of particular importance, given the 2024 presidential race as the UAW’s endorsement of any candidate would be key in securing blue-collar votes. Meanwhile, Stellantis (STLA) sweetened its contract proposal, although UAW’s Shawn Fain said it was a “no-go”. Note that Ford (F) laid off 600 workers at its Michigan plant because of the strike. (7 comments)
Giga Turkey?
Turkish President Tayyip Erdogan has called on Tesla (TSLA) CEO Elon Musk to build a new factory in Turkey during a meeting in New York ahead of the UN General Assembly’s meeting that kicks off today. Musk said Turkey will be among the top candidates for a Tesla investment. Erdogan and Musk also discussed Turkey’s AI strategy, as well as the potential cooperation between SpaceX and the country’s space program. SpaceX is planning to seek a license to offer Starlink in Turkey. Musk is also expected to meet Israeli Prime Minister Benjamin Netanyahu in California today to discuss AI. (3 comments)
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