September 2022 -Inflation and The Fed

The Federal Reserve, Inflation, and interest rates. These three topics have dominated the financial news cycle for the last year and a half and will continue to be the primary catalyst for where both equity and bond markets head as we approach the end of the year.

In my May and July notes I mentioned we were seeing indications that inflation had or was largely in the process of peaking. This was evidenced by July’s Consumer Price Index report coming in lower than expected in August and on September 13th August’s CPI report will be released and we expect to see further declines supporting our peak inflation thesis referenced in our May note.

On September 21st we fully expect the Federal Reserve to raise interest rates again by .75% (75 basis points) and believe this will be the last big interest rate hike in this campaign. If we had to speculate several months down the road, there may be additional .25% increases in both November and December.

The Inflationary fever is breaking but it would be premature for the Fed to ease up on the interest rate increases at the current moment. The good news is these interest rate increases appear to be fully baked into the Fed funds futures markets (as of Feb 2023 quote) and unless we’re thrown a curve ball, we could see market volatility start to calm down and provide a foundation for markets to meaningfully recover in the coming months as I have discussed in July.

Despite better than expected second quarter corporate earnings, the Fed is the only game in town currently and everything else is just day to day noise until the path of interest rate increases become clearer.

Tactically, within portfolios allocations we have been taking advantage of the inverted yield curve by buying individual corporate and agency bonds with limited maturities and locking in higher yield to maturities at or below PAR. Municipal bonds are still trading at decent premiums to PAR given the limited supply available on secondary markets and despite the tax-free nature of the coupons, corporate and agencies are more attractive.

We have been adding to our existing equity and equity ETF positions on market pullbacks as opportunistically as possible while being mindful of the risk/reward present in this type of environment.

The various macro headwinds plaguing this market will start to clear in the coming months. As long term investors, time is on our side but we must remain patient. Please remember, bear markets and tough times don’t last forever. We have to grind it out, there’s no shortcuts.

We wish you and your family a great Friday evening, and a wonderful Labor Day weekend!

As always, please reach out to us with any questions or comments you may have regarding your specific situation.


Jaran C. Day, Chief Investment Officer

Griffin Dalrymple, CFP®, Chief Strategy Officer