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12.16.2022 by David M. Smith

The Fed Slows Rate Hikes as Inflation Cools

This week the Federal Reserve raised the short-term rate by 0.50% to a targeted range of 4.25% - 4.50%. Fed officials expect the short-term rates eventually to get to a little over 5.0% before they are finished with hikes and they intend to keep it high throughout 2023. Next year the Federal Reserve committee expects the unemployment rate to rise from the current 3.7% to 4.6% and for the economy to grow only 0.5%. Bloomberg

Jerome Powell acknowledged the lower inflation reading for November (next article) but focused much of his comments on the strong labor market. He stated the risks for more inflation resided in the very low unemployment rate and as long as the labor market remained tight, inflation could still be a problem. If lower inflation reports continue, investors may shift all their focus to the unemployment rate and other employment data looking for signs the labor market is cooling allowing the Federal Reserve to stop rate hikes altogether.

The Promising November Inflation Report: All year investors have been looking for inflation to recede. October’s inflation report showed the first signs of slowing inflation and November’s report showed significant slowing. Consumer prices only rose 0.1% month-over-month from October to November. The expectation was that it would rise by 0.3% so it was substantially lower than expected. From the table below, you can see that in many months early in 2022 inflation was rising 0.5% or higher every month, but in the last few months, the increases have been much lower. The slowdown in inflation is giving the Federal Reserve the data, and coverage, it needs to slow rate hikes. Reuters

FAI 12.16.22   Chart: U.S. Bureau of Labor Statistics

Fusion Energy Breakthrough: For the first time, scientists created a fusion reaction that gave out more energy than it absorbed. Energy experts are calling this possibly the biggest scientific achievement of this century. There are plenty of links for an explanation, but in a nutshell, fusion energy is what powers our sun and the stars and could be a source of endless clean energy in the future. Experts state we are decades away from commercial viability so it won’t upend energy markets now, but it could be the power of the future. PBS Newshour   Bloomberg – Fusion is Nuclear Power Without the Meltdowns and Radioactive Waste   CNN – Bill Nye Explains Fusion Energy

Financial Planning/Investment Strategy Corner:

Grandparents and 529 Accounts: Many grandparents like to help pay for college for grandchildren. But in the past, if a grandparent used funds from their 529 accounts for grandkids, the dollar amount was added to the child’s expected future financial contribution toward college the next year. Basically, it reduced future financial aid. So, our recommendation in the past had been for grandparents to only use their 529 funds for a student’s last year of college since there would be no future year affected. But that will no longer be the case starting in the 2023-2024 school year. Starting next fall, grandparents will be able to use their 529 accounts without “penalizing” a student’s financial aid. This makes 529 accounts a more attractive option for grandparents in the future. If you have questions about 529 accounts or other educational savings accounts, please contact your financial advisor.   CNBC

Quick Hits for the Week:

  • People who feel younger than they are may actually live longer: WSJ
  • For a little solitude and a reset, go on a self-date: The Atlantic  
  • The Argentina soccer team took 1100 pounds of Yerba Mate to the World Cup and they think it helped power them to the final: NYT Healthline – Benefits & Side Effects of Yerba Mate
  • Fun, festive holiday desserts that are easy to make with 5 ingredients or less: Insider
  • And… How to make the ultimate Hanukkah pastry – jelly doughnuts: AP News
  • Last minute gift ideas: CNN NYT – Wirecutter

Sleeping on Your Back May Be Best: Most people sleep on their sides, but that position can aggravate neck, shoulder, and hip pain. Studies have also shown that sleeping on your right side can aggravate heartburn. Stomach sleeping is even worse as it can put pressure on your whole body. For pain management and taking pressure off your joints, back sleeping is the best position. Click the link for tips on how to train yourself to sleep on your back.  Popular Science

Podcast Smartless: A friend recently recommended this podcast to me and I have been laughing ever since. The three hosts are Jason Bateman, Shawn Hayes, and Will Arnett, three long-time actors. The concept is that one host brings on a guest that the other two don’t know about and then they have a fun conversation about their lives and careers. Many of the guests are high-profile actors or directors but they have also hosted musicians, athletes, and politicians. The discussion with Ken Burns was one of my favorites and the one in the link but there are plenty to choose from. If you don’t mind a little foul language and a lot of horseplay, check it out! Smartless – Ken Burns

Quote: “Kindness in words creates confidence. Kindness in thinking creates profoundness. Kindness in giving creates love. Lao Tzu, Chinese philosopher

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