• The Federal Reserve instituted its first 75 basis point (bps) hike in the federal funds rate since 1994, setting the target range at 1.5% to 1.75%.
    • In the decision to move to 75 bps after it was more or less certain the Fed would hike just 50 bps, the central bank demonstrated to investors that they are willing to be both more aggressive and more nimble in response to unexpected surprises in economic, specifically inflation, data.
    • No doubt, the combination of an unexpectedly elevated CPI reading and a surprisingly dour University of Michigan Consumer Sentiment report had a significant effect on policy makers.
  • So far this year, fed funds futures markets have markedly outpaced the fed funds rate target range.
    • Efforts to close that gap seem to mollify markets – participants view the shift as the Fed normalizing its view on economic conditions and becoming more realistic in their assessment of inflation.
    • The midpoint of the dot plots for individual members expectations now shows the benchmark rate finishing the year at 3.4%.
  • A follow up 75 bps in July would put the fed funds rate nearly in line with feds funds futures in short order and leave the option to be more restrictive later in the 3rd or 4th quarter, after a pause in August.
    • In addressing terminal value, Chair Powell didn’t dispute a speculated range of 3.5 – 4.0% but cautioned that we would “know when we get there.”

How does Fed Policy impact you?

  • The Chairman expects that range would see positive real rates across the curve, though stressed they would “find this out empirically, [won’t] be completely model driven about this, and will [remain reactive] to incoming data both on financial and economic conditions.”
    • Positive real rates would reestablish the much-maligned fixed income asset class as a reasonable, even attractive, investment option as coupons reset higher.
  • While some volatility should be expected, this may have established a sense of stability in markets.
    • A more realistic path for interest rate hikes (one more in line with market expectations in the face of challenging economic conditions marked by significant inflation) at least makes it possible to make investment projections more intelligently, i.e. feel more comfortable buying.


  • This week, initial and continuing jobless claims publish on Thursday, and the final reading for June’s University of Michigan Consumer Sentiment index releases on Friday.

How do Unemployment and Consumer Sentiment impact you?

  • Maximum stable employment is the second critical piece of the Fed’s dual mandate, along with price stability. Although keeping unemployment down is important, the historically low levels seen currently have this objective taking a back seat to wrangling inflation. The final University of Michigan survey should provide some insight on the stability of long-term market expectations for prices.


Market Index Returns as of 6/17/221WTDQTDYTD1 YR3 YR5 YR
S&P 500-5.75%-18.59%-22.33%-10.51%9.35%10.53%
Dow Jones Industrial Average-4.73%-13.36%-16.91%-8.47%5.99%9.22%
Russell Mid-Cap-7.42%-18.85%-23.46%-16.61%5.63%7.43%
Russell 2000 (Small Cap)-7.43%-19.30%-25.37%-24.69%3.41%4.83%
MSCI EAFE (International)-5.73%-14.74%-19.78%-18.06%1.07%2.11%
MSCI Emerging Markets-4.65%-11.78%-17.94%-24.73%0.55%2.20%
Bloomberg Barclays US Agg Bond-0.92%-5.89%-11.48%-11.43%-1.31%0.52%
Bloomberg Barclays High Yield Corp.-1.19%-8.68%-13.10%-11.15%0.62%2.37%
Bloomberg Barclays Global Agg-1.26%-9.11%-14.71%-16.07%-3.43%-0.72%


  • U.S. equities retreated for the week S&P down -5.75%
  • Small caps also gave up ground and underperformed their larger counterparts with the Russell 2000 shredding -7.43%
  • International stocks outperformed domestic equities, but still in the red down -5.73%.
  • Emerging markets were negative returning -4.65%.
  • U.S. investment grade bonds were negative with the Bloomberg Barclays U.S. Aggregate Bond index down -0.92%


ANOTHER BEAR – When the S&P 500 closed at 3667 last Thursday 6/16/2022, the index was down 23.6% from its all-time closing high of 4797 set on 1/03/2022, i.e., qualifying as a “bear” market decline of at least 20%. The drop was the index’s 11th “bear” since 1950 but its 2nd since the start of the global pandemic. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock’s weight in the index proportionate to its market value (source: BTN Research).

IT MAY TAKE AWHILE – After suffering 10 separate “bear” markets between 1950 and 2021, the S&P 500 recovered and eventually achieved a new all-time closing high each time. The average length of time it took to retrace its steps from a “bear” market low to a new closing high was 25 ½ months or more than 2 years. The quickest recovery for stocks took place over just 3 months (in 1982) while the longest recovery took 70 months or nearly 6 years (between 1974-1980) (source: BTN Research).

TREASURYS – As of the end of fiscal year 2021 (9/30/2021), the Fed held more than twice the level of Treasury securities ($5.4 trillion) as held by Japan ($1.3 trillion) and China ($1.0 trillion) combined (source: CBO).

NOT A HAPPY CAMPER – “Consumer sentiment” of the American shopper, an indicator of how optimistic consumers feel about their finances, fell in June 2022 to its lowest level ever. “Consumer sentiment” has been tracked monthly since January 1978 (source: University of Michigan).

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.