Newsletter 2022 09-Sep

Quarterly Letter to Members

The Federal Open Market Committee (“FOMC” or “The Fed”) increased the target range for the Federal Funds rate by 0.75% bringing the range to 3.00 to 3.25%. This was a unanimous decision by the Committee and in line with market pricing and forward guidance.

There were very minimal changes to the statement and the continued hawkish theme prevailed. The highlight was clearly the changes to the Summary of Economic Projections (“SEP”) – yet another dramatic shift higher from June’s update. Once upon a time, shifts in the dots of this magnitude would be shocking (for instance, the first half of the year), but they have now become routine.

The FOMC once again made significant changes to their forecasts for policy rates over the coming years. These upward revisions led to modest downward revisions in GDP forecasts over the time horizon and modest upward revisions to the unemployment rate as well. Inflation was revised higher for 2022, but not by much for 2023 and 2024.

The bottom line is, that if we place September’s SEP side-by-side next to March and June’s SEP’s, we see lower growth, higher unemployment, and higher restrictive rates. In sum, the September SEP paints a hard-landing scenario and Chairman Powell mentioned in his press conference that the FOMC is willing to risk a recession to bring inflation closer to their 2% target.

The press conference was reminiscent of Chairman Jerome Powell’s themes in his speech at Jackson Hole and was remarkably in line with market expectations. Powell delivered 0.75% bringing the upper bound target rate range at 3.25% and the SEP indicated another 1.25% of hikes by year end (median dot for 2022 rose 1.00% to 4.375% from 3.375%). This has signaled the markets to price a 0.75% rate hike at the November meeting, a 0.50% rate hike at the December meeting and a 0.25% rate hike at the February 2023 meeting. This outlook reflects the 2023 SEP terminal rate assumption of 4.50% – 4.75%. Indirectly, the Fed has indicated that the jobs market will be an unintended casualty from its current battle against inflation.

Looking ahead, the inflation data will remain the primary driver of volatility and Fed expectations. Added to the mix, employment data will increasingly contribute to the macro narrative, as will the pace of real consumption. The September meeting was never going to be the Fed pivot, although at some point between now and February 2023, the Committee will need to signal that the terminal rate is approaching. Clearly this will be accompanied by a reiteration of the “restrictive for longer” mantra.

Portfolio Matters

Fund Composition

The month opened with a $592,081,461.79 balance and closed with a balance of $647,706,988.06. The seven-day effective yield ended the month at 2.78%. The monthly seven-day average effective yield for the month was 2.23%. Average maturity ended the month at 9 days.

Comparisons

5-Year Money Market Comparison

At the end of the month, the AMLIP portfolio had 38% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 3% of the assets, commercial paper represented 37%, CDs represented 6%, and Treasury & Agency represented 16%. On September 26th, the seven-day compound yield of all taxable money market funds as reported by iMoneyNet, Inc. was 2.47%, the Tier 1 Institutional Compound Yield was 2.73%, and the Pool’s 7-day effective rate of 2.55% on the same day. All Pool rates are quoted net of fees and expenses

AMLIP Board Members

Terry Eubank – President

City of Kenai

Cheyenne Heindel – Vice President

Matanuska-Susitna Borough

Jody Tow – Treasurer

Petersburg Borough

Nils Andreassen

Alaska Municipal League

Margaret (Peggy) Macdonald

Fairbanks North Star Borough

Kris Erchinger

City of Whittier

Melissa Haley

City and Borough of Sitka

AMLIP Membership

Adak, City of	Fairbanks, City of	Northwest Arctic Borough
AIDEA	False Pass, City of	School District
Akutan, City of	Fort Yukon, City of	City of Nulato
Alaska Govt Finance	Galena, City of	Old Harbor, City of
Officers Association	Gustavus, City of	Palmer, City of
Alaska Municipal League	Haines, City and Borough	Pribilof School District
Aleknagik, City of	Homer, City of	Pelican, City of
Aleutians East Borough	Hoonah, City of	Pelican City School District
AML/JIA	Huslia, City of	Quinhagak, City of
Anchorage Comm. Development	Juneau, City and Borough	Petersburg Borough
Angoon, City of	Kake City School District	Pilot Station, City of
Annette Island School District	Kenai Peninsula Borough	Sand Point, City of
Atka, City of	Kenai, City of	Selawik, City of
Atqasuk, City of	Ketchikan Gateway Borough	Seldovia, City of
Barrow, City of	King Cove, City of	Seward, City of
Bethel, City of	Kodiak Island Borough	Sitka, City and Borough
Brevig Mission, City of	Kodiak, City of	Soldotna, City of
Bristol Bay Borough	Koyuk, City of	Southwest Alaska
Chevak, City of	Kotzebue, City of	Municipal Conference
Chuathbaluk, City of	Manakotak, City of	St. Paul, City of
Cold Bay, City of	Marshall, City of	Tenakee Springs, City of
Cordova, City of	Matanuska-Susitna Borough	Toksook Bay
Delta Junction, City of	Mekoryuk, City of	Unalakleet, City of
Denali Borough	McGrath, City of	Unalaska, City of
Dillingham, City of	Mekoryuk, Village of	Upper Kalskag, City of
Eagle, City of	New Stuyahok, City of	Wasilla, City of
Eek, City of	Nome, City of	Whittier, City of
Egegik, City of	North Pole, City of	Wrangell, City and Borough
Elim, City of	Northwest Arctic Borough	Wrangell School District
Fairbanks North Star Borough		Yakutat, City and Borough