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The Fed is pleased with recent inflation data

Summary: Even though inflation data remains above the Fed’s stated 2% target, Federal Reserve officials seem to be signaling that they’re pleased with the current state of inflation and less likely to raise rates again. Earnings season began last week with JP Morgan and Wells Fargo reporting. The consumer appears to still be strong, driven by affluent consumers. Office portfolios are an area of weakness.

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Macro

The Fed is pleased with recent inflation data

"In the last three months, we're finally getting very good inflation data that we wanted. If this continues, we're pretty much back to our targets. We're seeing wages softening coming down…So on that side, things are looking good. The economy is just really booming. GDP growth may come in over 4% for the third quarter, after being roughly 2% for the last four so the real side of the economy seems to be doing well. The nominal side is going in the direction we want. We're in this position where we watch and see what happens on rage." - US Federal Reserve Governor Christopher J. Waller 

They’re close to the peak of the tightening cycle 

"Though inflation levels are still too high, taking the time to holistically assess incoming information is warranted. It reflects the fact that we are likely close to the peak of this tightening cycle, with the risk of inflation remaining persistently high more closely balanced with the risk of slowing activity more than needed to achieve price stability. Still, Collins expects we'll need to hold rates at restrictive levels until we see evidence that inflation is on a sustained path back to 2%." - Boston Fed President Susan M. Collins

Rising long-term interest rates are helping them

"...the financial markets are tightening up and they're going to do some of the work for us. So it's not like we didn't see this before we're just keeping a very close eye on that and then we'll see how these higher rates feed into what we do in policy in the coming year." - US Federal Reserve Governor Christopher J. Waller

The consumer appears relatively healthy

"...the things that I usually look at with the consumer to detect whether there's high stress, we see good results, Nik. Number one is the convenience store channel. Typically, when gas prices are up and consumer incomes are stressed, you see revenue in those channels under stress as well. For Q3, we saw revenue up 5% in beverages and 8% in foods in the convenience channel. Number two is food service, that's also typically a leading indicator, that's still growing double digits." - PepsiCo (PEP 0.00%↑) CFO Hugh Johnston

"Consumer spending remains strong with third quarter year-over-year growth rates for both credit and debit card spending increasing from the second quarter." - Wells Fargo & Co (WFC 0.00%↑) CEO Charles Scharf

But growth rates are back to pre-pandemic levels

"Consumer spend growth has now reverted to pre-pandemic trends with nominal spend for customer stable and relatively flat year-on-year. Cash buffers continue to normalize to pre-pandemic levels with lower income groups normalizing faster." - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum

Pent-up COVID money is being spent

"There's been a change in consumer behavior with credit cards being at an all-time high, interest rates on credit cards being very, very high, and we know that we see shrinking savings accounts on consumers. So, some of the pent-up money that was sitting around since COVID is being spent. And when we see the problems, geopolitical, we see gas rising, putting more pressure on the consumer." - VOXX International Corporation (VOXX 0.00%↑) CEO Patrick Lavelle

Affluent consumers account for almost all of the growth

"In the U.S., recent data implies a soft landing, but history would suggest otherwise, and we are seeing some cracks in the lower FICO consumers..I think most of the pressure in the lower FICO…we can certainly see some of that pressure for the lower FICO, whereas when I think about the cards business, it's very much driven by the affluent customer. So the affluent is accounting for almost all the spending growth that we're seeing. And that's similar to the numbers that we saw from coming out of the Fed from the deposit side, the excess savings are sitting there, now primarily with households with over $150,000 of income. And it's down in the rest." - Citigroup (C 0.00%↑) Jane Fraser

“As far as the aspirational customers and particularly in the U.S. is concerned, we have reported already some pressure on that front in the first half of the year. And unfortunately, there was nothing new there. You can notice that the numbers in the U.S. are reasonably consistent with and they are consistent and I would say, for most of the divisions. So nothing really to report neither bad nor no good." - LVMH ($LVMHF) CFO Jean-Jacques Guiony

Geopolitical tensions could have far-reaching impacts

"...the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades…How do you prepare the company for that? We do 100 stress tests a week. And we do multiple views of it, including geopolitical problems or interest rate problems. But usually, geopolitics presents itself as usually as a deep recession or a mild recession, a recession part of the world or markets going down a lot." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon

International