December 6, 2022 | Economic Outlook

Economic Outlook - December 2022

  1. The U.S. Federal Reserve raised the federal funds rate at their latest meeting 75 basis points. This marks the fourth consecutive 75 basis point hike, bringing the central bank’s policy rate, the federal funds rate, to a new range of 3.75% to 4% – its highest level since 2008. We believe that the pace of future increases will be dependent upon the committee evaluating the impact of the cumulative tightening of monetary policy, the lags with which monetary policy effects economic activity, inflation and economic and financial developments. In short, we do not expect the Fed to pause in the near term; rather, we do expect future increases to moderate into the 25-50 basis point range before an eventual pause.

  2. Retail sales rose sharply in October, a sign of economic strength and one that we believe indicates that the Federal Reserve will likely continue raising the federal funds rate. U.S. retail sales climbed a seasonally adjusted 1.3% last month. The jump in sales showed households continuing to have the resources to increase their spending despite inflation running close to a four-decade high. Many households saw their savings grow earlier in the pandemic due in part to trillions of dollars of government stimulus with fewer opportunities to spend. It will take time but we expect higher interest rates will eventually bring demand into better alignment with supply.

  3. The Consumer Price index (CPI) reading for October brought some good news for the market, with a downside surprise across all headline readings. The index rose 0.4% month over month and 7.7% year over year. Consensus had been 0.6% and 7.9%, respectively. This reinforces our call for the Fed to hike rates less than 75 basis points in December as long as the November CPI release (12/13) does not reverse the solid progress in this report. While there is a long way to go in the fight to get inflation back to the 2% range, it is a step in the right direction.

  4. The S&P CoreLogic Case-Shiller National Home Price index, which measures home prices across the nation, fell 1% in the latest reading. This is the first time prices have declined for three consecutive months in nearly four years. Weakness in single-family housing activity is being somewhat offset by strength in multi-family housing starts but not enough to push the index positive. The rapid rise in mortgage rates has pushed many buyers out of the market as home buying has become less affordable due to the increase in mortgage costs. Given the continuing macroeconomic concerns, high mortgage rates and increased costs for non-discretionary items, we believe additional downward pressure on the housing market is likely.

Sources: Bloomberg LLC, FactSet, U.S. Department of Labor

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.

For more information, call Ed Sullivan, Vice President, at 617-557-9800, or email him at