Reinhart Week in Review by Madison Investments 11.18.22


FED SPEAK

After what were perceived as dovish comments from a few Fed members earlier in the week, St. Louis Fed President James Bullard offered a more hawkish perspective. With early rate hikes having “only limited effects on observed inflation,” Bullard thinks that rates need to move significantly higher and provided what he considers a reasonable range of 5% -7% for where fed funds will need to be to constrain inflation.

Our Take: While the market eagerly searches for signs of a dovish pivot on policy, Fed members continue to highlight that additional tightening is necessary. Despite being down slightly from recent highs, inflation remains well above the Fed’s target range. The Fed is signaling that rates are going higher and will stay higher until real progress is made on inflation.

RETAIL SALES

October retail sales rose by the most in eight months, even when stripping out autos & gas. The gain was broad-based, and the control group of sales indicates a strong start to goods consumption in the fourth quarter.

Our Take: Consumers are proving resilient even in the face of high inflation, rising interest rates, and concerns about a potential recession. Fed tightening has not yet constrained consumer spending and is unlikely to do so until unemployment rises and wage growth cools.

MUNICIPALS

Moody’s Investors Service upgraded the City of Chicago’s General Obligation bonds from Ba1 to Baa3. This marks the first upgrade for the City of Chicago by Moody’s in 12 years. The Moody’s upgrade brings all of Chicago’s ratings to investment grade. Moody’s stated that “Chicago has substantially increased its pension contributions and enacted numerous revenue increases” and has reduced its operating deficit.

Our Take: Chicago has taken steps to improve its fiscal health and has been rewarded with upgrades from the ratings agencies. The Moody’s upgrade is good news for bondholders and may lead to decreased borrowing costs in the future. Estimates indicate that, due to the upgrades, the city could save $100 million for each $1 billion borrowed according to a recent City of Chicago press release.

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This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Although the information in this report has been obtained from sources that the firm believes to be reliable, we do not guarantee its accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.