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Global Insight Weekly
Global Insight WEEKLYJuly 28, 2022 Perspectives from the Global Portfolio Advisory CommitteeData dependency to depend on dour data Thomas Garretson, CFA MinneapolisThis week marked a shift at the Fed as policymakers have left forward guidance for markets behind in favor of a meeting-by-meeting approach, where policy adjustments will depend on the incoming data. But as this week also showed, the incoming data might not be all that great, and this rate hike may be one of the one is done. Since late last year, the Fed has used its most powerful tool, forward guidance, to prepare markets for rate hikes. Ever-higher inflation this year has led the Fed to ramp up the pace of those hikes in an effort to get policy rates back to neutral, and expeditiously so. Now, following a second consecutive 75 basis point (bps) rate hike taking the target range to percent to percent, the stance of monetary policy sits in the middle of the Fed s estimated neutral range for the economy of percent to percent, where, in theory, policy is neither restricting nor boosting economic growth.
at market valuations in light of earnings expectations. Specifically, the S&P 500’s 2022 price-to-earnings valuation based on consensus earnings estimates has fallen from 23.5x in the early days of January to 19.7x today. The valuation contraction is clear, and is all the more important in light of the index’s 6% decline year to date.
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