The Week in Review: February 6, 2023
The Two Faces of Powell
Last year, the Federal Reserve and Fed Chief Jerome Powell’s bite were probably worse than the bark. Rhetoric and commentary were forceful and were matched by a nearly unprecedented series of rate hikes, including four-straight 75 basis point (bp, 1 bp = 0.01%) increases.
Last year, the Fed front-loaded rate hikes. Recently, it has signaled a more mellow pace.
On Wednesday, the Federal Reserve raised its key lending rate, the fed funds rate, by 25 bp to a range of 4.50—4.75%, as expected.
Rhetorically, however, Powell picked up where he left off last year, bringing up the Fed’s 2% annual inflation goal six times in his opening statement. He emphasized it’s too early to declare victory on inflation, fretted over not doing enough, and suggested additional rate increases (plural) are on the horizon.
But he was much more open to acknowledging the recent slowdown in inflation. He conceded that inflation could slow faster than the Fed expects, and seemed less inclined to push back against investor expectations that rates will peak next month.
That’s not the forceful tone we heard from Powell in December and much of 2022.
Meanwhile, investors have been backing away from the idea that we might see a recession this year as the global outlook has improved.
In summary, these are variables that have aided the market in the new year.
Payroll bonanza
Friday’s announcement from the U.S. Bureau of Labor Statistics of 517,000 net new jobs last month was a shocker and far above the CNBC consensus of 187,000. Further, the jobless rate fell to a 53-year low of 3.4% from 3.5% in January.
In part, the economy is expanding. In part, the huge number of job openings has not yet abated, even as companies in some industries continue to backfill open positions that should have been filled months ago.
One must wonder whether Powell’s modest rhetorical shift would have occurred if the Fed had met after January’s red-hot jobs report.
If you have any questions or concerns, please do not hesitate to contact me directly.
Two for the Road
In 2022, an estimated 420,000 new rental apartments were built in the United States, the highest amount for new multifamily construction in a half-century. - The New York Times, January 20, 2023
In October of 2022, billionaire Larry Ellison was pulled over for running a stop sign and speeding on the Hawaiian Island of Lanai – which is 98% owned by Ellison. - RepublicWorld, January 13, 2023
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.