Check out the after-hours movers:

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Thanks for reading my Diary today -- I hope it was value added!

Enjoy the evening.

Be safe.

Here are the closing breadth, biggest movers and heat map data at the close.

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Today I added to my (META) long (at around $94) and I sold (naked) November (monthlies) $95 META puts at around $5.

At 3:30 pm: 

- NYSE volume 522M shares, 4% above its three-month average; decliners lead advancers by 1.1:1.

- NASDAQ volume 3.88B shares, 11% below its three-month average; decliners lead advancers by 1.1:1.

- VIX index +0.8% at 25.95

The decline in equities is modest and, to me, inconsistent with the magnitude of the interest rate rise today: 

* The yield on the two year Treasury note is at 4.66%, up by nine basis points.

* The yield on the ten year Treasury note is at 4.11%, up by ten basis points.

* The yield on the long bond (thirty years) is 4.22%, up by ten basis points.

Graham

I will have to say META is a really interesting chart of the latest lost love. And how much it hurts! Here is chart since IPO (Log Scale), I had forgotten it took time to get the momentum:

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dougie kass Graham

I have a small position which I am adding to now under $93.
I suspect a lot of mutual funds are bailing (its the last day of their fiscal years).
Few mutual funds wans to show the name.
I have found that "forced" selling often yields profits.
Zuck will be pressured to rationalize his high spending and become more of a "cash cow."
My guess is happens sooner than later.
Dougie

* The ETF, MSOS, provides a diversified exposure to cannabis

* My favorite "larger" cap cannabis stock is Green Thumb Industries (GTBIF) 

* My favorite "speculative" stock with the largest percentage upside is TerrAscend (TRSSF)

With the log jam of regulation finally breaking down I am making cannabis stocks my Trades of the Week:

Todd Harrison

I have been adding to cannabis equities recently: 

Oct 12, 2022 ' 10:45 AM EDT DOUG KASS

Adding to Cannabis, Banks, and More

I added to cannabis stocks and bank positions - across the board.

Here is what I wrote about 10 days ago:

Oct 21, 2022 ' 12:36 PM EDT DOUG KASS

The Cannabis 'Look'

Again for emphasis, the AdvisorShares Pure US Cannabis ETF (MSOS) and the rest of the individual cannabis equities have a different and more favorable "look."

And here is what I wrote three weeks ago:

Oct 10, 2022 ' 09:00 AM EDT DOUG KASS

The Biden Pivot - Cannabis Equities May Be Poised to Triple by 2025

See here.

I have not been that active in Monday's trading session. 

* I shorted more (CVX) and (XOM) at good prices - when the stocks gapped higher in the morning - and covered what I shorted on the windfall profit tax news and reversal.

* I am offering more CVX and XOM on the short side now - on the rally from the lows.

* I shorted more (OIH) .

* I traded around a core (SPY) (puts and calls) straddle and strangle.

* From Charlie:

Here and here.

So we now have every regional manufacturing index that is in contraction with two more today, the Chicago region as well as in Dallas. The October Chicago PMI fell to 45.2 from an already below 50 read of 45.7 in September. New orders fell to just 39.2 while backlogs and employment rose but with all still under 50.

MNI said "Weak economic outlooks are dragging on demand." Inventories were up by 3.9 pts to 56.9 and "Despite remaining high, firms are moving towards normalizing levels of stock." With respect to inflation, prices paid rose a touch but is still around 10 pts below the one yr average. "Half of firms experienced increased prices in October, compared to around 80% in the first half of the year. Falling container costs and the strong Us dollar are contributing to lower logistical costs."

The Dallas manufacturing index dropped to -19.4 from -17.2 in September and vs the estimate of little change. New orders, backlogs and shipments all were below zero. Capital spending plans declined from September at 7.1, down about half. Inventories went negative while delivery times were little changed. Prices paid fell again but for those received it rose after the September drop. Employment was up about 2 pts while hours worked were about zero at -.1. The six month overall business outlook was -21.2, under zero for a 6th straight month.

Bottom line, manufacturing makes up about 11% of GDP that is now in contraction as measured by S&P Global and all the regional surveys. Tomorrow's ISM is expected to be exactly 50 but with now obvious risk of something less. Treasury yields are at the lows of the day in response.

Here were some notable quotes from the Dallas region:

Food manufacturing

"Inflation in key raw materials and manufacturing expenses is expected to continue.

"The outlook has dimmed slightly. Some raw material costs have decreased, while others continue to increase or stay the same (higher level). Some customers are quietly cutting back on orders. We are in the food business, so the change is subtle."

Textile Product Mills

"As a contract manufacturer for many different sectors, we see that home goods sales such as mattress subcomponents and comforters and pillows have consistently dropped and are half of what they were this time last year."

Paper Manufacturing

"We have been anticipating (and experiencing) a decline in business for several months now. The rate increases are starting to go too far."

Machinery Manufacturing

"Some raw materials are going down in cost; however, many other purchased components have had an increase in cost. Those levying surcharges have not removed those fees."

"Business is slowing. Companies are being more deliberate in how they spend money."

"We are still running strong and steady, however, we feel that the worsening economy will eventually catch up with us and may bring us back to reality."

Computer and Electronic Product Manufacturing

"Inflationary pressure is reducing orders while supply chain pressure eases, so we have excess inventory for our customers."

"We have seen a significant decrease in new orders, which is not sustainable for us."

"We saw weakness in the personal electronics market grow in the third quarter and began to see weakness in the industrial market space. We expect most markets to weaken in the fourth quarter, though an exception may be automotive."

Chicago PMI

Dallas Mfr'g

According to a report, President Biden may seek a windfall profit tax on energy companies and that's what's taking down the energy space now.

The bulls try to regroup at midmorning after having a bit of a setback on bond yields. They seemed to react to every basis point move. The deal now looks like we are going to circle the wagons at Dow minus 75 and see if they can perhaps build on things a little bit further on.

A lot of incentives on the simple 75 bp move, followed by 50 in December and 25 in January, but that is what short-term bond yields have set-up and we will see how they continue.

The big hope for the bulls would be in the afternoon to regroup enough to possibly get them back into plus territory, but as we noted in the Comments, they are getting up to areas on the charts in the indices that are going to introduce a little bit of resistance here.

Stay safe.

Arthur

The differential in performance of value (financials, energy, etc.) vs. growth (primarily technology) is striking.

Market internals at 10:30 am:

Breadth

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Biggest Movers

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Heat Map

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If we remember back to September 21st, the last FOMC meeting, Wednesday might end up being a non-event in that the Fed will deliver what they laid out then. That after getting another 75 bps hike, the 4th straight one to that finally achieved 4 handle, they'll go in smaller increments thereafter with likely 50 bps more in December.

In order to avoid seeming more dovish as to dilute what they are trying to do, Powell will likely say that the destination might end up being the same, regardless of the pace of hikes from here and that anything between 4-5% is possible and thus leaving open the door of more rate increases in 2023 even if smaller in size. Either way, QT is still running at the pretty robust size of $95b per month with the only question being what level of bank reserves is needed in order to not have a repeat of 2019. We'll unfortunately only know it when we see it.

A big piece of the analysis will be rents as it dominates CPI as we know, even though less so in PCE. Over the weekend Apartment List.com released its November National Rent Report (covering leases for new tenants as opposed to extending expiring ones) and said "Our national index fell by .7% over the course of October, marking the 2nd straight m/o/m decline, and the largest single monthly dip in the history of our index, going back to 2017. These past two months have marked a rapid cooldown in the market, but the timing of that cooldown is consistent with a seasonal trend that was typical in pre-pandemic years. Going forward it is likely that rents will continue falling in the coming months as we enter the winter slow season for the rental market."

This said, new rents are still up 5.9% y/o/y and "continues to outpace the pre-pandemic trend, even as it has slowed significantly from last year's peaks" but that is a sharp slowdown from the 18% y/o/y increase at this point in 2021. So, 2022 will still be the 2nd quickest pace of rent gains in the Apartment List short history.

While demand is cooling, more supply is helping too as "Our vacancy index now stands at 5.5%, after a full year of gradual increases from a low of 4.1% last fall." Though that is still below the pre-pandemic trends. The breadth of rent slowdown is wide as "Rents decreased this month in 89 of the nation's 100 largest cities in October."

I wonder if a Fed member/staffer has this survey on their data radar screen.

A few days after the ECB hiked rates by another 75 bps to just 1.5% and already some of their members are getting weak knees in continuing that pace and that Lagarde said they have made substantial progress in taking away accommodation (even though QT hasn't even started and rates are still barely positive), the Eurozone CPI for October just printed up 10.7% y/o/y, 4 tenths more than expected. The core rate up by 5% was as expected but up from 4.8% in September, 4.3% in August, 4% in July and 3.7% in June. Non-energy industrial goods prices accelerated as they did for services.

As the core rate was in line, the 5 yr 5 yr euro inflation swap is up only 2 bps to 2.38% but that is just slightly below the highest since May. Bond yields in Europe are higher and the euro is back below $1.00. Stocks are flattish.

Speaking of 'weak knees' on rates, today it was the Italian central bank head Ignazio Visco who said "The danger that the deterioration of the economic outlook will turn out to be worse than expected, making an excessively rapid step in the normalization of interest rates disproportionate, shouldn't be underestimated."

Complicating the ECB's job is the desire of European workers for higher wages in order to cushion the ever rising cost of living. IG Metall, Germany's largest union, on Friday told its members in the metal and electronics industries to strike. They want an 8% rise in wages and instead they've been offered only a one time bonus to cover a 30 month time frame.

The Eurozone also saw Q3 GDP rise .2% q/o/q and 2.1% y/o/y, a hair above the estimate but follows an .8% q/o/q and 4.1% y/o/y increase in Q2.

Eurozone CPI y/o/y

5 yr 5 yr Euro Inflation Swap

Highlighting the lunacy and cross purposes of fiscal and monetary policy in Japan, the 29 Trillion yen (about $200b) fiscal stimulus that the Japanese government approved on Friday is in large part to offset the higher inflation that the Bank of Japan has been trying to stoke for the last 10 years and now that they've become successful in doing so, won't back down with a change in monetary policy.

PM Kishida said "The economic measures are designed to overcome rising prices and to achieve an economic recovery. We will protect the people's lives, jobs and businesses, and strengthen the economy for the future." Kuroda on the other hand is trying to pick and choose which inflation he thinks is good and which he thinks is bad (will respond to the former and not the latter) when either way, a higher cost of living is the result. And with the yen, the Finance Ministry said they spent 6.3 Trillion of yen (about $42b) in FX interventions in October.

China said its October state sector composite PMI fell below 50 at 49 from 50.9 in September with both services and manufacturing also less than 50. We shouldn't be surprised as China keeps shooting at its own economy. Chinese stocks fell and the yuan is weaker in response.

The price of wheat is jumping by almost 6% on the Kremlin move over the weekend to back out of the grain shipments deal even though some ships did leave ports over the weekend. We'll see how long that lasts but wheat prices are still well below the initial post invasion spike.

Wheat

At 8:52 am:

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Upside

- (LLAP) +32% (receives $100M Investment from Lockheed Martin)
- (WISA) +12% (has retained advisor to explore strategic alternatives)
- (ATNM) +11% (releases positive top-line results from pivotal Phase 3 SIERRA trial of Iomab-B in patients with active relapsed or refractory acute myeloid leukemia)
- (SONN) +11% (collaborates with Janssen for the evaluation of three Sonnet product candidates)
- (GME) +9.7% (momentum)
- (ALZN) +8.0% (receives FDA "Study May Proceed" letter for Phase I/IIA trial under Its investigational NDA for an immunotherapy vaccine (ALZN002) to treat mild to moderate dementia of the Alzheimer's type)
- (WYNN) +6.4% (Chinese authorities said mainland residents can apply for electronic travel permits for Macau starting from Nov. 1)
- (MLCO) +5.5% (Chinese authorities said mainland residents can apply for electronic travel permits for Macau starting from Nov. 1)
- (NOMD) +4.3% (reports prelim Q3 Rev, issues guidance and launches refinancing of senior secured term loan)
- (GSAT) +3.0% (Craig-Hallum Initiates GSAT with Buy, price target: $5)

Downside

- (QNGY) -72% (prices 9.8M unit offering at $1.70/unit v $1.53/unit expected)
- (YMAB) -40% (multiple broker downgrades following 'disappointing' outcome of FDA Advisory Committee Meeting on Omburtamab)
- (TIL) -36% (voluntarily pauses enrollment in ongoing clinical trials related to manufacturing)
- (EPIX) -27% (Janssen is suspending enrollment into Phase 1 clinical study of EPI-7386 with apalutamide or EPI-7386 with abiraterone acetate plus prednisone in metastatic castration-resistant prostate cancer patients as a result of operational recruitment challenges)
- (TSP) -20% (terminates contract of CEO Dr Xiaodi Hou, effective immediately; disclosed Company shared confidential information with Hydron and its partners, which was not brought to the attention of the Audit Committee and Government Security Committee)
- (HWM) -7.0% (earnings, guidance)
- (PBR) -6.8% (Brazil Pres-elect Lula: Let's fight for zero deforestation; Brazil is ready to resume its leading role in the fight against the climate crisis, protecting all our biomes, especially the Amazon Forest)
- (AZO) -5.1% (downside momentum)
- (TXMD) -4.7% (receives additional $7M private placement from Rubric Capital Management LP)
- (GPN) -4.2% (earnings, guidance)
- (PARA) -3.5% (Wells Fargo Cuts PARA to Underweight from Equal Weight, price target: $13)
- (NUVL) -3.1% (files to sell $200M in Class A common shares)
- (EWZ) -2.8% (Lula elected with 50.8% of the vote in Brazilian Presidential election)
- (SAIA) -2.7% (earnings)
- (ARLP) -2.6% (earnings, guidance)
- (ON) -2.2% (earnings, guidance) 

With Halloween looming just ahead, the bulls found nothing frightening Friday and, in fact, took some hope in the ultimate calming of the yield picture and Apple's giving hope to the rather dismal high cap tech sector and a variety of charts and technicals and even speculation in some very short-term options. We covered a great deal of that in this late morning update:

10.28.22 LATE MORNING UPDATE After a very mild pre-opening hesitation, the Dow came roaring back out[1]of-the-box, led by the energy stocks, and is leading a nice Friday push by the Bulls. The yield on the 10 year and 2 year began to move up and looked like it might interfere. But, now that yield has pulled back into respectability around the 4.00%, in the 10 year. I would think that we may see the Bulls kind of settle back here. It's been a terrific morning and a lot of side chatter over things like Twitter and the high cap techs and what their future may be.

But for now, the Bulls have to be happy, the S&P is back up wrestling with its 50 day moving average (circa 3855). So we will see if they can move that. As you will recall, we had said that this Bear market bounce would probably have legs. The target was somewhere around 3900 to 3975 in the S&P, we have not gotten there yet. And assuming there are no geopolitical surprises, however, the Bulls should be able to close the day out without giving up too much ground. Stay safe.
__________ 

The markets remained strong all day and they did not get to rest on their laurels in the afternoon as we had suspected in the update, but in fact, came on again and that, we believe, may have been influenced by the expiration and transactions in very short options. In fact, some same day options. According to speculation on the street, it was massive movements in the indexes and that allowed for the rather highly unusual event of all three key indices moving up more than 2 ½ percent. They were also helped by the S&P challenging and then clearly pushing above its 50 day average and, later, the Dow did the same thing with its 200-day moving average.

So, what probably in the form chart should have been a very respectful solid day for the bulls turned into something that was near riotously happy in a pre-Halloween celebration. We will have to wait and see what happens as this week moves in. We have the Fed decision at 2:00 p.m. on Wednesday and that will be the focus of attention certainly for the first three days of the week. It is roundly assumed that they will move up 75 bp, but the real question is - what will they be looking at for the December meeting and will they begin to pause.

The idea that the Fed is beginning to sense that it could pause or at least slow the rate increase is becoming a major factor in the markets and so, the conversation in weeks and the speculation will clearly be important through all of this. So, as a grand celebration for the bulls keeps going, it is best that we look to see what happened overnight and over the weekend in the global equity markets.

Overnight, global equity markets are somewhat undramatic. Asian markets are slightly better, mostly playing catch-up to the rally that they saw on Friday in New York. The Chinese markets are having some second thoughts perhaps on the Covid situation. There is more about it popping up. Some corporations are announcing preventative measures, possibly to gain favor with newly re-confirmed President Xi. The markets in Europe are bit more uncertain. They were trading while a good deal of Friday's rally took place. So, there is some hesitancy here that the Fed meeting may not wind up with a press conference that is too encouraging.

The gentleman at the Wall Street Journal, who is believed to be a Fed whisperer, whispered over the weekend that the Fed may not be as ready to decelerate as he and others had speculated on just a couple of weeks ago. The yields are inching higher. The yield on the ten-year got up to 4.06% and the yield on the two-year also moved up a couple of basis points. So, that will certainly keep everyone's attention as we head to the Wednesday press conference.

The futures here in the U.S. are picking up on the mild uptick in yields and, as dawn hits Staten Island, the Dow futures look like they are going to open somewhere between -25 and -100. We are going to keep a close eye on this rally. You will recall that a week and a half ago, we said it looked like it would have legs and announced we were in good company with Katie Stockton and Mike Wilson both seeming to confirm the same thing. We are getting to move closer to June and August highs. So, we will be respectful of that.

With the S&P at 3900, we look for resistance to begin to show up around 3950, certainly up through 4025, but that doesn't look like it is going to necessarily be a problem this morning. The U.S. economic calendar is extraordinarily light, and the key factor probably will be the Chicago PMI data, which comes out right after the opening. So, in the meantime, keep your eye on the yields. They will be important and expect a little bit of resistance on any attempts on the upside.

Let's stick with the current drill.

Stay close to the newsticker. Keep your seatbelt fastened. Stay nimble and alert and please stay safe.

Have A Happy Halloween

Here is an after hours (today) earnings calendar:

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"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves"

This daily feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake, setting the stage for their strategy in the day. The market is a complicated mosaic and the more info you have the better trader and investor you will be! (At the request of some subscribers I am streamlining this column this morning.)

* While the equity markets rebounded robustly and surprisingly last Friday, I have been communicating a sense of caution that the recent market advance (in October) was not likely the start of a new Bull Market , though I consistently have been of the view, when many were panicking, that the June 2022 lows would hold.

1. Friday's S&P close touched the 100-day moving average -- I suspect this will be resistance (and not easily overcome):

1. Friday marked the second to last day of the mutual fund industry's annual fiscal year. I suspect that there were a lot of markups on Friday as mutual funds like to do these sort of antics on the second to last day of the yearso they don't get into trouble on the last day!
2. The Wall Street Journal's "Fed Whisperer," Nick Timiraos, made some cautionary remarks (which I agree with) that suggest the prior Friday's "pivot" chatter was not rooted in fact.

1. The health and economic news out of China were negative over the weekend with Covid cases spreading and more government lockdowns. And China's factory and services data disappointed. 
2. Global bond yields were higher on Friday and that trend continues here on Monday morning (the U.S. 10-year note yield is +6 basis points). A divergence between bond yields and equity prices cannot continue for much longer, imho.
3. The price of oil is lower this morning (by $1/barrel) and energy stocks (I have been shorting VanEck Oil Services ETF (OIH) , Chevron (CVX) and Exxon Mobil (XOM) ) are trading modestly lower in the premarket.
4. The market has grown overbought; the S&P Oscillator has steadily rebounded from a week-ago reading of 0.16% to 8.48% at Friday's close. (It was 5.30% at Thursday's close).

* S&P (-25) and Nasdaq (-90) futures were lower at 4:47 a.m., with the decline intensifying over the last 30 minutes.

* "All investment roads lead to interest rates" continues to be the market's mantra and the watchword of my investing faith. However, as noted above there has been some divergence late last week when both stocks and bond yields climbed. This has continued this morning and is probably not sustainable.

* Bond yields and a more hawkish Fed (than expected) when combined with the profits cycle represent the greatest risk to the markets and will likely contain the current rally, at the least. .

* I continue to be alert to signs of dollar funding stress with the three-month FRA/OIS spread widening. That said, the high-yield market has been stable in spreads price and yield.

* The UK and the European Union's economic and financial uncertainty and instability, punching above their weight -- of taming inflation on one hand and resuscitating economic growth on the other -- remain the concern du jour. As I have previously written, who would have thought several months ago that UK policy would be the tail that wags the US market's dog?

* Currencies were stable this morning.

* Market inflation data have noticeably moderated, serving to soften labor and hard/soft commodities in recent months. As well, supply chain disruptions have moderated and the housing market has hit a wall. This morning most agricultural commodities were higher in price (after Russian pulled out of an export agreement) and Brent crude oil is lower in price.

The market (and money) never sleeps -- and neither do I, it appears!

I described the importance that overnight futures trading holds for me here. It is a guidepost to my strategy in the regular trading session.

Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

After the tech wreck on Thursday night, the S&P and Nasdaq futures were lower, but not appreciably so on that day. After a weak opening on Friday, the markets rebounded materially and during the regular trading session were on the lead from "flag pole to that's all."

In recent weeks, during these volatile markets, I have kept a bead on volatility. In recent days the VIX has moved from the low 30s to 26.98 (+1.23 this morning). This has benefited my S&P straddle .

Gold has recently shown some life after being weak for months. However, the precious metal is lower by $6 this morning after another awful day on Friday.

This morning Brent oil is lower by $0.60 to $95.23/barrel. I have been adding to my OIH short and last week I initiated shorts in CVX and XOM. Energy equities have materially outperformed the commodity as the momentum gang has glomed onto the sector, which has been the best-performing group this year in the S&P

Bond yields continue to represent the greatest risk to equities. As noted above, yields around the globe were higher this morning.

Also as noted, the S&P Oscillator has grown overbought,- standing at 8.48% at Friday's close. This is way higher than the range of -3% to -4% about three weeks ago (when equities were falling) and is up from 0.16% on Oct. 21. As noted, with the emerging overbought I have stepped off the accelerator of adding to equities and have put on the brake over the last week as the oscillator has been a good short-term trading tool over the last few months.

Cryptocurrencies have inched higher in recent days but are lower this morning (by $175) to about $20,500. Like gold, I continue to have zero interest in any cryptos.

S&P futures peaked at +3 and bottomed at -27. At 5:12 am ET futures were -24 handles.

Nasdaq futures peaked at +6 and bottomed at -103. At 5:14 am ET futures were -94 handles.

Here is a synopsis (link) of some of my columns I believe were important, or in the event you were out Friday. The principle intent is to review the logic of my market moves and other factors:

Apple's Net Cash Is the Lowest Since 2010! (I shorted Apple (AAPL) at $156 on Friday)

Reducing Exposure

Mutual Funds Mark-Ups?

To Be Honest

This next section provides transparency and a further record in memorializing my good and bad investments. Frankly, there are a lot of disingenuous actors who smile and get away in the business media with disastrous recommendations of individual stocks and in piss-poor market projections.

Here are some of my trades for Friday (you can see my willingness to go against a strong market trend during the day as reward vs. risk has noticeably deteriorated/changed recently):

* I sold all of my SPDR S&P 500 ETF (SPY) and Invesco QQQ Trust (QQQ) longs. (I still have a straddle on)

* I added to OIH short and I initiated shorts in CVX and XOM.

* I initiated a new short in Apple ($156.18)

* I sold some more calls against some of my investment longs in banks after a vigorous rally in the sector over the last week.

* I sold some calls against United Airlines (UAL) , Delta Air Lines (DAL) and Hilton (HLT) common core positions after a continued strong rally in the transport and travel spaces. 
__________

Long UAL, DAL, HLT, BAC, C, WFC, JPM, PNC, FITB, USB.

Short SPY calls and puts, UAL calls, DAL calls, HLT calls, BAC calls, C calls, WFC calls, JPM calls, PNC calls, FITB calls, USB calls, OIH, CVX, XOM, AAPL.

From Bramo:

Break in.

Disney's (DIS) Shanghai Resort closes today because of Covid curbs.

Another one from Jonathan (same theme!):

Johnathan Ferro
@FerroTV

"We are adding another 25bp hike to our own forecast-which now calls for hikes of 75bp in November, 50bp in December, 25bp in February, and 25bp in March- and now see the funds rate peaking at 4.75-5%" Goldman Sachs.

This chart is a useful tool for short term traders:
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That was quick but not unexpected - and part of the reason why I have reduced my net long exposure into the rally over the last few days. :

Neil S

The Fed Whisperer gives, and the Fed Whisperer takes.

Some officials have argued for slowing the pace of rate rises after this week's meeting. But the debate over the speed of increases could obscure a more important one around how high rates ultimately rise. In economic projections released at the Fed's last meeting in mid-September, most officials anticipated their policy rate would reach at least 4.6% by early next year. But some economists think it will have to go higher than 4.6%, citing in particular reduced sensitivity of spending to higher interest rates.

U.S. households still have around $1.7 trillion in savings they accumulated through mid-2021 above and beyond what they would have saved if income and spending had grown in line with the prepandemic economy, according to estimates by Fed economists. Around $350 billion in excess savings as of June were held by the lower half of the income distribution, or around $5,500 per household on average.

Businesses were also able to lock in lower borrowing costs as interest rates plumbed new lows in 2020 and 2021. Just 3% of junk bonds, or those issued by companies without investment-grade ratings, mature over the next year, and only 8% come due before 2025, according to Goldman Sachs. State and local governments are also flush with cash, leaving them in a far better position than after the recession of 2007 to 2009.

While the housing market-among the most interest-rate sensitive parts of the economy-is entering a deep downturn, the rest of the economy is so far holding together. Consumer credit-card balances are rising. Earnings reports from companies including United Airlines Holdings Inc., Bank of America Corp., Nestlé SA, Coca-Cola Co. and Netflix Inc. also point to strong consumer demand and pricing increases.

"This is not the earnings season the [Fed] wanted to see," said Samuel Rines, managing director at Corbu LLC, a market intelligence firm in Houston. "For now, the consumer is too strong for comfort." The upshot is that cooling the U.S. economy might require even higher interest rates. The household savings buffer "suggests to me we may have to keep at this for a while," said Federal Reserve Bank of Kansas City President Esther George in a webinar earlier this month.

Ms. George is among a handful of Fed officials who have argued in favor of slowing down the pace of interest-rate increases. But she also said the central bank's ultimate rate destination might be higher than anticipated and that the Fed might have to stay at that higher rate longer.

Worker pay and benefits continued to rise at a rapid clip in the third quarter, according to a Labor Department measure released Friday that is closely monitored by the Fed. The employment-cost index, a measure of what employers pay for wages and benefits, showed that wages and benefits for private-sector workers excluding incentive-paid occupations rose 5.6% from a year earlier.

Jason Furman, a Harvard economist who served as a top adviser to former President Obama, thinks it will be harder for the Fed to slow down the economy. He said he sees the fed-funds rate ultimately reaching 5.25% next year, with a significant risk for topping out at an even higher level. Steven Blitz, chief U.S. economist at research firm TS Lombard, thinks the central bank's policy rate will rise to 5.5%. "A recession is coming in 2023, but there is more work for the Fed to do to create one," he said.

The silver lining might be that stronger private-sector balance sheets cushion the extent of any slump in the U.S. The danger is that higher interest rates or a stronger dollar make trouble in corners of a global financial system that had come to expect low interest rates to persist.