- The Cleveland Federal Reserve President indicated the FED would need to keep raising rates and cannot get complacent as they work to battle the most substantial inflation in a generation. Given the current level of inflation and how it is broadly based in nature, and its persistence, monetary policy will need to stay restrictive to put inflation on a downward path to 2% in the next year. This goal will be challenging, in my opinion. Bottom line, the FED will raise another 75bps this month and most likely 50bps before year-end. We will probably see a slowing over the 1st Q of 2023 and a halt in the 2nd Q of 2023.
- Many states are becoming cautious in preparation for an economic downturn, Connecticut being the latest one. Connecticut currently calls it a rainy-day fund, with about 15% of its budget in cash. I suspect many more states are doing this; however not reporting now. As indicated, MUNIs are in good shape from a credit quality aspect if you buy> A rated paper.
- Fitch indicated the MUNI market saw positive rating increases over the last quarter. Additionally, they are concerned this will slow down due to sustained inflation, weakening state revenue growth, and impact ratings. S&P and Moody's have not commented on this issue yet. As we have indicated in the past and on our webinar, ratings are not and should not be an issue; municipalities are "flush with cash" and will not need to go to the market to raise capital for improvements for quite some time.
- US futures and European stocks rose ahead of Thursday's inflation report. The Bank of England confirmed its plan to end emergency bond purchases on Friday after confusion sparked by a Financial Times report that the central bank was prepared to extend the support to stave off a crisis in UK pensions.
- The Federal Bank of NY president indicated rates would need to rise around 4.50% over time. Still, the pace and ultimate peak of the tightening campaign will hinge on how the overall economy performs. The timing is "unknown," and the focus is to get CPI back down to 2% to allow the economy to continue to grow.
- Visible supply will begin the week at $6.7B, well below the 2022 average of $10.8B. This supply will continue to "stay low" as we move through the balance of this year as municipalities are pulling deals due to the increased rate environment. This issue ultimately should add to pricing stability as rates move up.
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