Stock Securities Projects Rates Go Higher and Economic Landing’s Harder than Markets Expect
February 6, 2023
This week Treasury yield curve inversion between 2-year and 10-year Treasury notes reached an all-time high, a spread of -0.81% far surpassing the -.65% spread inversion in 1982. The probability of recession and its magnitude are increasing although not yet in coming into focus short of the increasing number and frequency of major company layoff announcements. Meanwhile, the January monthly jobs report recorded a particularly strong and unexpected increase in non-farm payroll employment of 517,000, far exceeding any economist’s forecast. What this means is the economy is not slowing fast enough for the Federal Reserve to meet its price stability target of 2.0% inflation. With the most recent CPI reading of 6.5% over the past 12 months, the Fed has a long way to go and will continue to raise the Fed funds rate steadily and meaningfully over the course of this year. The Fed funds rate target range is now 4.5% to 4.75%. Prior to the January data coming out, most forecast the Fed would raise its rate to no more than 5.25% and then hold steady late this year into 2024. This policy now deemed unlikely to be sufficient to tame inflation to the level Chairman Powell and his fellow governors want to see. Minneapolis Fed President Neel Kashkari indeed has raised his forecast for the Fed rate to 5.4% before the Fed commences a pause. While the Fed is committed to following the data and adjusting policy accordingly, we believe that rates will need to go significantly higher, and the recession will be deeper than the markets are expecting. Timing is everything. The window for alternatives remains open and it’s safe to transact while relatively cheap credit still flows, and equity markets persist in proving the bears wrong (for now).
**********************************
About Stock Securities LLC
Stock Securities LLC is a FINRA, SEC and SIPC registered broker-dealer specializing in corporate strategy, M&A transaction advisory and private placements. Founded in Princeton, New Jersey in 1993, Stock Securities, its predecessor and affiliated companies have initiated, arranged or otherwise participated as a principal in acquisition, private debt, merger, IPO, joint venture, private equity placement, private investment in public equity, and capital restructurings valued at more than $20.0 billion.
Please contact us or visit our website at www.stocksecurities.com for additional information. We welcome proposals to engage for mutual benefit and promise a prompt and confidential response.
