Can the Fed Drive 75? Will It? | Chief Investment Officer

As the stock market sinks into the bear pit, one question is animating Wall Street today: Will the Federal Reserve’s policymaking panel hike its benchmark rate by 0.75 percentage point at its Wednesday meeting? Or stay with the previously telegraphed 0.50 point?

There’s growing sentiment on Wall Street and Washington that the Fed may impose the 0.75 point boost tomorrow.

Federal Reserve Chair Jerome Powell said last month that he wanted to “avoid adding uncertainty,” but also pointed to possible “further surprises” in inflation data. If astonishing inflation results occurred, he said the Fed would need to be “nimble.” Since then, he has had a heckuva surprise: The Consumer Price Index for May came in at 8.6%, versus 12 months before, far above what forecasters expected (8.1%).

So now, Barclays, Goldman Sachs, and JPMorgan Chase all expect a 0.75 percentage point hike tomorrow. “They’ve made it pretty clear that they want to prioritize price stability,” wrote Pooja Sriram, Barclays’ U.S. economist, in a note. “If that is their plan, a more aggressive policy stance is what they need to be doing.”

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“This is when being nimble matters,” Diane Swonk, chief economist at Grant Thornton, told the New York Times. Choosing a 0.75 point hike “would underscore their commitment to avoid mistakes of the 1970s.” Back then, the Fed initially delayed acting on tightening policy, which let the inflation contagion worsen.

Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, points to the shock of the most recent CPI reading and the ongoing dismay of Americans enduring gasoline topping $5 per gallon and grocery prices leaping 10%. The impact of that on consumers is why 0.75 is possible, he argues. “That would send a strong signal to the markets” that the Fed means business about combating inflation, he says.

The Fed had been indicating that it would proceed with half-point increases, and Goldwein thinks that is the most likely outcome tomorrow “by a small percentage” because of the Fed’s previous emphasis on this scenario.

But if the CPI continues on its current trajectory, he warns, it will hit 10.1% by year-end.

Staffan Hansén

The Third Swedish National Pension Fund, aka AP3, has named Staffan Hansén as its new CEO, effective no later than December 1. Hansén succeeds Kerstin Hessius, who announced in March that she will be stepping down after 18 years at the helm.

“I am delighted we have recruited Staffan Hansén as AP3’s new CEO. I believe his extensive experience of asset management and his strong track record as a CEO and leader, combined with all the very competent people at AP3, will provide the optimal basis for continued successful operations of the Fund and hence of the state pension system,” Christina Lindenius, AP3’s chairman of the board, said in a statement.

Hansén is currently CEO of SPP Pension & Försäkring, a life insurance company that is part of Norwegian financial services firm Storebrand. He previously served as CEO of Storebrand Asset Management and was responsible for Storebrand’s life insurance portfolios. Before that, he was in charge of fixedincome trading at Swedish consumer banking company Handelsbanken and Nordic asset manager Alfred Berg.

”I am very much looking forward to getting to know my AP3 colleagues and working with them to continue delivering on the fund’s important mission for the state pension system,” Hansén said in a statement. “I have great respect for the excellent results AP3 has achieved in the past and am taking on the role of CEO with the aim of continuing to develop the fund as a world-class asset manager with a professional and positive work environment.”

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AP3 is one of five funds that manage capital on behalf of the Swedish state pension system. As of the end of 2021, the fund’s asset value was 502 billion kronor ($49.5 billion), and last year the fund reported the best financial results in its 20-year history, with an investment return of 20.7%. Over the last 10 years, AP3 has reported an average annual return of 11.1%, and has earned an average annual return of 7.0% percent since its inception in 2001.

Hansén has been CEO of SPP since 2015, and according to the company he helped raise its earnings significantly to currently manage 224 billion kronor. The company said that under his stewardship, SPP has implemented changes in working methods, IT platforms and new partnerships.

“The insurance market is undergoing major changes where SPP is now well equipped for the future,” Hansén said. “The time within the Storebrand Group has been extremely stimulating both on a personal and performance level. I will follow SPP and Storebrand as a loyal customer.”