NEAM's CIO sees a quarter-point Fed hike in December

New England Asset Management chief investment officer Jenn Quisenberry expects a quarter-point Fed rate increase in December, with third-quarter GDP running at a 3.4% annualized rate.

The FOMC kept the target range at 3.75% to 4% on Oct. 28, with two dissents in favor of a quarter-point hike, Jenn Quisenberry wrote in Insurance AUM Journal's November Trade Winds column. The statement upgraded its description of activity from "solid" to "strong" and said the "accumulation of more information" would help determine the stance needed to return inflation to the 2% goal. Her reading is that the Fed will weigh market and financial conditions alongside economic data and the effect of higher rates on the economy.

A quarter-point increase in December raises the yield available on bonds bought after the meeting; coupons and maturities that arrive before it get reinvested without that extra 25 basis points. Quisenberry also flags a change in the meeting calendar with a portfolio consequence: from 2027, one of the eight FOMC meetings each year goes to strategic policy discussion instead of a rate vote, rising to two in 2028, which she says could increase volatility around the meetings where a rate change is possible.

Real GDP rose at a 3.4% annualized rate in the third quarter, up from 2.2% in the second. Investment, consumer spending and government spending contributed, while declining exports and rising imports weighed on output. Underlying domestic demand stayed strong, with real final sales to private domestic purchasers up 4.9% versus 4.6% in the prior quarter. The figures point to continued strength in consumer and business spending and limited evidence that higher rates restrained activity during the period.

Hiring has slowed without a jump in layoffs. September payrolls rose by 29,000, alongside combined downward revisions of 60,000 for July and August. Unemployment was 4.2%, inside its recent range, which the note reads as weak hiring rather than a sharp deterioration. Weekly initial claims stayed below 200,000, against a pre-pandemic 250,000. Real average hourly earnings fell 0.7% year over year in September, and the note describes diminishing income support for consumption.

Inflation has stabilized rather than resumed its decline. Over the past six months headline PCE has run at 3.5% and core at 3%, which the note attributes to energy-related pressures, labor shortages in select industries, supply-chain disruptions and AI-related capital spending that is lifting demand for equipment and power. Inflation stuck at 3.5% while growth accelerates is the backdrop for the December move the note expects.

The dissent has thinned: three members voted to hike in July, as Private Wealth Daily previously reported, against two at the October meeting. NEAM reported $111.7 billion in regulatory assets across 1,001 accounts in its Form ADV filed March 31. The next scheduled vote is in December, and on Quisenberry's reading the decision will weigh financial conditions alongside the data the statement cited.