A First Foundation Blog

The Week Ahead – A New Phase in the Tightening Cycle

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week. 

The big news last week was, of course, the FOMC meeting. The meeting ended with rates at 4% after the fourth consecutive 75 bp hike and paved the way for a new phase of the current tightening cycle— less aggressive hikes but with a higher endpoint. At the post-meeting press conference, Chair Powell acknowledged that recent data was consistent with policy rates higher than those in the September dot plot. Powell also noted that the final destination for rates might be higher than previously expected and that the time spent there could be longer.

One notable observation, though, is that the futures market is very quick at adjusting to the Fed’s view, with Dec. 2023 Fed futures already at 5%, which is likely to be near the new terminal rate in the December dot plot that will be released at the next FOMC meeting. To this point, the Fed has exhibited a sense that they would take rates to a high level and then leave them there for an extended time as a hoped-for “soft landing” played out. From Powell’s press conference, he views this path to a soft economic landing as “narrowing” and favors using policy tools to support the economy should the Fed raise rates too high.

In our view, this infers that if the Fed gets it wrong, it could start cutting rates. As Powell noted, the Fed could be forced to reverse course just as quickly as it has set out to raise rates. Hence, we believe investors should look to take advantage of the multi-decade high in rates as a result of aggressive central banks, as the window for investors interested in yield may close sooner than expected.

This week, the market focus will be core CPI inflation and the 2022 Midterm elections. The rest of the calendar will be light but expect there to be heavy Fed-speak, as each FOMC member is likely to share their views on the new terminal rate and the data inputs that could incline one to hike for longer and to a higher level in early-mid 2023. 

Data deck for November 5 - November 11:

Data Deck Nov. 5 - 11




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Calvin Jones, CFA, Managing Director of Fixed Income
About the Author
Calvin Jones, CFA, Managing Director of Fixed Income
Mr. Jones is a senior member of the First Foundation Advisors investment management team and is responsible for working closely with First Foundation’s financial advisors to develop investment strategies utilizing income assets to help clients achieve their financial goals. In his role, Mr. Jones serves on the company’s Investment and Asset Allocation committees and is responsible for leading and overseeing the firm’s fixed income assets. Mr. Jones joined First Foundation Advisors in 2011. His previous experience at ProShare Advisors included trading and analysis in global equity and derivatives markets for the world’s largest manager of leveraged and inverse funds. Mr. Jones earned a Bachelor of Engineering degree from the University of Pittsburgh and a Master of Science in Mathematical Finance degree from the University of North Carolina at Charlotte. He is a member of the CFA Institute and the CFA Society of Los Angeles. Read more