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11.4.2022 by David M. Smith

Deciphering the Fed Comments After Rate Increase

This week the Federal Reserve raised short-term interest rates by 0.75%. This raised the Federal-Funds rate target range to 3.75% - 4.00%. The Federal Reserve Committee’s notes released after the meeting stated that “ongoing increases” will likely be needed that are “sufficiently restrictive to return inflation to 2% over time.” The notes also said, “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Many investors' immediate reaction was to interpret this to mean that rate hikes were slowing and coming to an end and stocks moved up and bond yields moved lower. Bloomberg Reuters

Chairman Powell then commented that the labor market was still very strong with only a little bit of softening so far. But he stated he didn’t believe there was a wage-price spiral in the current inflation data. To his point, private companies added more jobs than expected in October. CNBC Axios Despite what markets perceived as constructive comments from the Committee’s notes about possibly slowing rates, Chairman Powell stated “It is very premature to be thinking about pausing. People when they hear ‘lags’ think about a pause. It is very premature, in my view, to think about talking about pausing our rate hikes.” Further, he added, “We still have some ways to go, and incoming data since our last meeting suggests the ultimate level of interest rates will be higher than previously expected.” With those comments, stocks moved lower and bond yields rose. Many investors found the Chairman’s comments confusing evidenced by the volatility of the markets both during and after his press conference. CNBC

Despite his comments, one thing is still certain - until inflation data shows broad decreases, the path of least resistance for rate hikes will be higher.

Voting Information: Next week the elections will be held on Tuesday, November 8th. Here are links to help educate you on candidates and where and when you can vote:

  • Factual unbiased information on candidates and local officials: Vote Smart
  • Lifetime voting records of Senators and House reps currently in office: Ballotpedia
  • Everything you need to know to vote from registering to polling locations and times:

Financial Planning Corner:

Retirement Contribution Limit Increases for 2023: Due to cost-of-living adjustments, the IRS is increasing the amounts you can contribute to retirement plans. For those using 401(k)s, 403(b)s, and most 457 and Thrift Savings Plans, the new limit next year will be $22,500 which is an increase of $2,000. Those 50 and older can contribute an additional $7,500 which means their total contribution limit is $30,000. For contributory IRA/Roth accounts the new limit is $6,500 plus an additional $1,000 for those 50 or older. Individuals who work for companies using SIMPLE IRA accounts can contribute up to $15,500 with a catch-up of $3,500 and those utilizing SEP-IRAs will be able to contribute up to $60,000 next year. If you are maxing out a company plan be sure to check your contribution percentage to make sure you keep up with the new limits. CNBC   IRS

Quick Hits for the Week:

  • Thanksgiving recipes and menu ideas for the upcoming holiday: Bon Apétit
  • And if you’re unsure which wines pair best with Thanksgiving food, here you go: Food & Wine
  • With a continuing La Nina effect, NOAA is predicting warmer than normal temperatures in coastal New England this winter with average precipitation. Much of the south and southwest are expected to have warmer than normal winter temperatures with less than average precipitation. NOAA
  • People in their 20’s and 30’s are signing up for AARP to get the benefits: WSJ
  • Assumptions can create negative feedback loops, here’s how you can stop: Fast Company
  • First, it was chess, now professional cornhole has a cheating scandal called BagGate: WSJ

The Missing Piece in Maslow’s Hierarchy of Needs: Many of us are very familiar with Maslow’s pyramid of human needs. The levels of needs from bottom to top are physiological, safety, belonging and love, esteem, and topping off with self-actualization. All of those are about the individual first meeting basic and emotional needs before fulfilling potential. But in Maslow’s later years he added a higher level to the pyramid of self-transcendence which is an individual seeing themselves as part of the broader universe. Interesting stuff. Freethink

The Greatest Beer Run Ever: John “Chick” Donohue was sitting in a bar in New York in 1967. The patrons of the neighborhood bar had lost friends and family in the Vietnam War and they were seeing protesters turn on the troops. Chick decided to track down their friends in combat to give them messages of support from back home and to give them beer. This crazier-than-fiction true story was originally a book but has now been made into a movie. It follows Chick’s journey to find his friends, but the story also is a chance to change the narrative of the war. It’s an opportunity for Vietnam vets to honor the camaraderie and friendships they made, which many have been reluctant to share publicly due to the war having such negative connotations. PBS Newshour   IMBD – The Greatest Beer Run Ever Amazon Books

The Science of Happiness: Arthur Brooks is a social scientist and professor at Harvard teaching a course on happiness. In this long podcast, he describes the three main components of happiness – enjoyment, satisfaction, and purpose. Enjoyment is an elevated form of pleasure (pleasure plus a great memory), satisfaction is the joy and reward for a job well done (but it’s fleeting), and purpose is meaning in life. He discusses how important relationships are and that spouses need to be more than romantic partners but our best friends. Dr. Brooks goes at length discussing how money, fame, power, pleasure, success addiction, and workaholism are detrimental to true happiness. “Happy” listening! 😊 Peter Attia, The Drive Podcast #226

Quote: “Democracy cannot succeed unless those who express their choice are prepared to choose wisely. The real safeguard of democracy, therefore, is education.” Franklin D. Roosevelt

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