Fed moves, explained

Friday eve is so much better than Christmas eve because we get to celebrate every week.?Phil Rosen here — it's good to see you today.?

In case you missed it, you should know the Federal Reserve yesterday raised interest rates by 75 basis points.?

Now, the Fed's benchmark rate is the highest it's been since 2008.

Remember, this rate influences borrowing costs for all kinds of consumer loan products. So higher rates mean you're paying more for credit cards, auto loans, and mortgages.

It also means we may be closer to a recession (if we aren't there already).?

The thinking goes like this: The more the Fed raises rates, the less money people will spend, so the economy will "cool down." But if the Fed gets too aggressive, it risks cooling the economy too much — a.k.a., a recession.

To make sense of all this Fed talk — and better explain it here in Opening Bell — I caught up with a veteran Fed watcher last night.?

But first, starting this week, our colleagues at Insider Audio are updating market news headlines all day. You can listen to the latest right here:

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1. In his Wednesday press conference,?Chairman Jerome Powell reiterated the central bank's commitment to bringing down inflation, made evident by the?three-quarter point move.

In his view, policymakers haven't overdone it with rate hikes. Powell said that a "sustained period of below-trend growth" will likely be needed to lower inflation, and the Fed must avoid the mistake of?not doing enough.

For those who haven't studied Fedspeak, here's a translation:?It'll likely take a recession to meaningfully bring down inflation.

Treasury yields shot higher during his comments, and stocks gyrated before closing steeply lower on the day.

Lundy Wright, senior vice president at Weiss Multi-Strategy Advisers, has been keeping tabs on the Fed for decades. He told me on a phone call last night how Powell seemed to signal that the pace of tightening would ease, but that they would?continue for longer.

"We're heading into a less data-dependent Fed, in terms of a month-to-month reaction, and a Fed that's hoping to observe and aggregate data over a longer horizon before they act," Wright said.?

At the same time, though, Wright maintained that a pause won't be coming anytime soon, as Powell said in as many words, and that the central bank will be taking aim at jobs moving forward.?

"There's no pivot," Wright said. "The Fed indicated that, effectively, a step down is possible if not probable, but because they elevated the terminal rate, no one can embrace a real pivot."

Powell said himself the Fed aimed to?balance out the robust labor market.?

To translate Fedspeak again: The Fed wants to increase unemployment.

"It is very premature to think about pausing," according to Powell. "We have a ways to go."?

Before the December Fed meeting, two more inflation reports will come out, as well as additional jobs data. Once those clock in, Wright expects the Fed to announce a 50-basis-point hike to kick off a series of less extreme moves.?

"The heavy lifting is done and now it's toning,"?Wright said. "The Fed doesn't want to say it's the finishing touches but they're hopeful it is."

The Fed's Wednesday announcement was basically a lock, but so far on Wall Street, there's?no consensus?for what happens next.?

Goldman Sachs and Morgan Stanley, for example,?expect a 50-basis-point move?at the next FOMC meeting in December.?

Others like Barclays and Deutsche Bank, though, are in the?75-basis-point camp.

What's your takeaway from the Federal Reserve news? What do you expect the Fed to do in December? Let us know in the comments.

In other news:

2. A top strategist at an $18 billion firm explained why the rally in energy stocks can keep going into 2023 and 2024.?Paul Baiocchi, chief ETF strategist for SS&C ALPS, said the sector's remarkable run can keep going for another year or two.?To him, investors should stay bullish on energy even though many traders have shunned it for a long time.

3. Sell your stocks after the massive market rally in October, according to Truist.?Strong gains will soon unwind, but investors can make one simple adjustment in their portfolios to score easy income while limiting risk —?here's how.

4. The chief market strategist of a $1.1 trillion firm explained why markets could rally for the rest of the year but ultimately crater 10% next year.?Plus, he shared the four sectors he's buying right now that can?provide steady cash flow, a defensive tilt, and cyclical tailwinds even in the face of a recession.

5. Citi's commodities chief said the only way oil can reach $120 per barrel is if there are a lot of supply disruptions moving forward.?"I think there's ample supply in the market for us not to have a big impact from China coming back," he said. President Xi's zero-COVID policies have thus far kept a lid on oil prices,?but unexpected events in Libya or Iran could change that.

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This newsletter was curated by Phil Rosen.