The most anticipated news of the week (or even the year) was the Fed’s December decision on interest rates.
After wreaking havoc on the markets for months, the Fed was expected to slow down. And it did.
On Wednesday, the Fed hiked the key interest rate by half a percentage point, reaching the target range of 4.25%–4.50%.
That’s the highest reading in 15 years. But that wasn’t the big news.
While analysts expected the hike, Jerome Powell’s outlook took them by surprise.
During the meeting, the Fed confirmed that it plans to continue trying to tame inflation with higher interest rates. It will likely continue raising them well into 2023.
The “terminal rate” estimate now stands at 5.1%, and only by 2024 will the rates be expected to plateau and start declining.
Following the announcement of the outlook, investors lowered their growth rate expectations for 2023. As a result, volatility spiked across the board, and major indexes finished the day in the red.
The good news is that the Fed’s hikes have become more gradual and predictable. And another series of aggressive 0.75pp hikes going forward is unlikely.
The Fed may even switch to 0.25pp hikes or pause altogether before reaching its target next year. It will depend on the labor market data and inflation readings.
The primary inflation indicator, the consumer price index (or CPI), has been declining since this summer. It still remains elevated at 7.1% annually, but prices are not growing as fast as they did before.
Even though prices are still rising, the rate at which they rise is slowing down.
That’s half-good news.
In the year when bad news was abundant, it looks like an improvement.
The White House Funds Three More Battery Plants
While the Fed is trying to fight inflation, the White House keeps supporting the clean energy transition.
This unstoppable trend will change the US economy while also creating jobs in one of the most critical sectors: lithium-ion battery production.
The White House has approved a $2.5-billion loan to General Motors and LG Energy Solution. These companies will build three new battery facilities in Ohio, Tennessee, and Michigan.
Overall, the three new plants will provide 11,100 jobs and help reach the government’s ambitious EV sales goal.
By 2030, the White House expects that 50% of all new car sales will be electric. That’s not an easy task. To get there, EV sales would need to reach 8.75 million in 2030. For comparison, only 600,000 EVs were sold in the US in 2021.
GM’s plans are also ambitious. It aims to produce zero-emission vehicles exclusively starting in 2035. Other car manufacturers have created similar outlooks to keep pace with their rivals.
To power 8.75 million new EVs per year, carmakers and the government need to overhaul the industry’s supply chain. Billions of dollars will support the mining of critical metals such as lithium and cobalt and the production of batteries and EVs.
Don’t forget about updating the charging networks and related infrastructure.
It’s a multi-billion-dollar trend, with many industries set to benefit from continuing investment from both the private sector and the government.
We keep mining companies involved in the production of the most critical elements needed for the “clean energy transition” on our radar.
Thank you for your loyal readership,
The Financial Star team