The Weekly Beacon December 15 2023

We will be giving some macro economic market updates on a weekly basis. No equity recommendations will be given in this commentary, and we encourage you to contact us if you have questions regarding any observations.

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This weeks issue: Interest rates, inflation, FED, FED funds rate, Jerome Powell, Cutting rates, China investment, Chinese outflows, Chinese stocks, Chinese economic health, Copper outlook, Copper demand, First quantum copper mine, SmileDirectClub, Bankruptcy, Negative cash flows, Multi family delinquencies, Federal government interest costs, Costs of rising rates, Social security payments.


FED versus inflation

The Federal Reserve’s battle against inflation looks to live on after Tuesday’s data release. Consumer inflation dipped slightly to 2.1% for the year ended November 30, 2023, as energy and gasoline prices retreated. However, core inflation which strips out volatile items like food and energy accelerated by 0.3% in November up from a 0.2% rise in October. The annual core inflation rate held firm at 4%, well above the Central Bank’s 2% target.

This persistent strength in price growth stems from rent, medical care, and car insurance which are all rising quite substantially. This reading may delay rate cuts which many believed would begin at one of the FED’s first meetings of 2024. FED officials are more than likely going to hold rates in place on Wednesday at their last rate announcement of 2023 (they did). The sticky core reading could push interest rate cuts to the end of next year and impact those who had been positioned for aggressive rate hikes at the start of 2024.

Tuesday’s reading is the second-lowest headline CPI reading since March 2021. The annual rate of headline inflation hit 3% in June of this year but has since inched upwards.

After this CPI release, the Federal Reserve made its final policy decision on Wednesday as they held interest rates in place yet again. Chairman Powell mentioned that most members of the FED see rate cuts next year. The news was music to the ears of investors who got a nice Christmas present from Powell.

Powell mentioned that the FED’s policy decisions have slowed inflation as they focus on affordability for all Americans. Powell said the FED is still focusing on bringing prices down without stalling the economy – something known as a soft landing. Powell mentioned that rate cuts will be a topic of discussion going forward. After the meeting, markets were pricing in 1.5% of interest rate cuts next year. That would take the benchmark funds rate down to a target range of 3.75%-4%. However, the FED’s dot plot says interest rates will not get to that level until 2025. In the FED’s dot plot, they expect to slash interest rates 3 times next year – notably more than their last dot plot release.

The Weekly Beacon December 15 2023