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At the annual Kansas City Federal Reserve Symposium today in Jackson Hole, Wyoming, Fed Chairman Jerome Powell reiterated the central bank’s stance that it will continue to raise interest rates until inflation returns below the Fed’s target. 2% In his speech, Powell made it clear that the Fed’s actions could cause some economic pain.
“Restoring price stability will take some time and will require aggressive use of our tools to bring demand and supply into better balance,” Powell said. “Reducing inflation may require a sustained period of below trend growth.”
The Fed has increased the federal-funds rate by 75 basis points (bps) at each of the last two meetings, marking the fastest rate of increase since the early 1990s. Their next meeting will be held on September 20-21, where they are expected to raise rates by at least 50 bps.
Today, the Bureau of Economic Analysis, Personal Income and Expenditure, July 2022 Report, showed that the Personal Consumption Expenditure (PCE) decreased month on month (-0.1%), while Core-PCE – excluding food and energy – increased by 0.1% in July. . PCE rose 6.3% year-over-year and core-PCE — the Fed’s preferred measure of inflation — rose 4.6% year over year. Core-PCE came in below economic expectations, down from June’s 4.8% annual increase.
This week we dive into two of Lipper’s equity categories that are most affected by movements in interest rates – the Lipper Science and Technology Fund and the Lipper Financial Services Fund. Out of 106 equity and mixed asset allocations, the science and technology fund (+$1.4 billion) experienced the largest weekly outflows, while the financial services fund (+$1.9 billion) attracted the most new capital.
While both allocations have seen multiple consecutive monthly outflows, science and technology funds are on pace for their fifth straight monthly outflow. They haven’t experienced such a sustained period of outflows since the end of 2018. It’s a growing environment for software and technology companies that are struggling with debt-laden balance sheets. In the last week of fund-flows, the allocation posted the sixth-biggest weekly flow on record.
Lipper Financial Services funds are on pace to end six months of outflows in what could be their biggest monthly inflows since early 2021. Financial issues that tend to see profits rise when interest rates rise are also seeing interest. Investors. Financial services funds have attracted more than $1.0 billion in inflows for two consecutive weeks for the first time since the start of the year. This past week, Lipper’s placement pulled in $1.9 billion, marking the second-biggest weekly gross this year.
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Editor’s Note: Bullets for this article’s summary were selected by Search Alpha editors.
