Remember when we were kids and it seem like the birthday would never come? Now they seem to come on almost a quarterly basis!
Speaking of a quarter, as we look back over the first quarter of this year, 2022, Wow, we had a lot of things occur.
As the calendar turned, the FOMC, led by chair Jerome Powell, reading very rearview mirror inflation data points, began verbally discussing aggressive rate hikes. Right on cue fixed income participants front ran the Fed and raised interest rate across the board.
Mortgage rates, specifically 30 year fixed mortgage rates have risen in percentage terms faster than any time in history. This is likely a product of the stopping of monthly FOMC purchases of mortgage back securities. It would not be unreasonable to think that current levels could be an overshoot from the artificial downward pressure the federal reserve had been creating.
As of late, several Federal Reserve Presidents have publicly doubled down on even more aggressive rate increases, pushing rates even higher.
Longer-term, recall increasing interest rates are headwinds to fixed income instruments initially, but higher interest rates mean greater income longer term.
Fiscal Stimulus Comparables
As we exit this quarter, and enter the next, we begin a journey over one of the most interesting comparable times in history. As noted in our Q1 and Q2 newsletter, tough comparables will likely make for a natural slowing of the economy. Recall last year at this time over $1 trillion of stimulus was pushed into the economy. As mentioned once again in our newsletter, this is a natural slowing and will be a tail wind to the federal reserve as they raise short term interest rates in an attempt to slow the economy.
And did we mention there was major Geopolitical conflict?
There is a saying that conflict is the great geography educator. Certainly it was a surprise to see the amount of resources that come from the two countries in conflict. The lack of resources on the natural market may be a headwind to lower prices of certain commodities..
In closing, the really good news is that much of what we have experienced in this past quarter, and the coming next quarter, in birthday like format may likely come and pass much faster than previously experienced.
John A. Kvale CFA, CFP
Enclosure (2022 Report)