Weekly Market Commentary
December 5, 2022
What will it take to slow this economy down?
In 2001, railway workers slowed a runaway train in Ohio by latching a second engine to the back of the locomotive and applying the brakes. In all, the train traveled sixty-six miles over two hours, decelerating from a maximum speed of 47 miles per hour to 10 miles per hour before workers regained control of it, according to CNN.
Throughout 2022, the United States Federal Reserve has been trying to slow inflation by putting the brakes on the U.S. economy. So far, the Fed has raised rates six times, but the economy continues to grow apace. Last week, the Bureau of Economic Analysis reported the economy grew faster than originally thought from July through September 2022. Gross domestic product (GDP), which is the value of all goods and services produced by the U.S., was up 2.9 percent, annualized, rather than 2.6 percent as the advance estimate indicated.
November 28, 2022
There was a shift in the winds of monetary policy.
Last week, it became clear the Federal Reserve (Fed) had softened its hawkish stance. The minutes of the central bank’s November policy meeting indicated the Fed was likely to slow the pace of rate hikes soon. There was a caveat, though. The minutes noted:
“…with inflation showing little sign thus far of abating, and with supply and demand imbalances in the economy persisting…the ultimate level of the federal funds rate that would be necessary to achieve the Committee’s goals was somewhat higher than [Fed officials] had previously expected.”
In other words, rate hikes are likely to be smaller in the future, but the federal funds rate will probably move higher than previously expected. Last week, the CME FedWatch Tool suggested that the federal funds target range will:
November 21, 2022
Thanksgiving and football go together like turkey and stuffing.
For some families, though, this year may be more like a turducken, stuffed with American football and the sport the rest of the world knows as football (soccer). The men’s World Cup, which is played every four years for national glory, the Jules Rimet trophy, and millions of dollars in prize money, began on Sunday and will end on December 18
During the tournament, researchers may track the influence of sentiment on markets. According to Mark Hulbert of MarketWatch, previous research has found that a team’s performance – especially a loss – can have a short but powerful effect on the national mood.
November 14, 2022
Last week was remarkable for many reasons.
One reason is that sky watchers around the world had an opportunity to see a total lunar eclipse. The moon, Earth and sun aligned, causing the moon to appear crimson. We won’t see another total lunar eclipse for three years, reported Denise Chow of NBC News.
Another reason, and one that’s far more important to consumers and investors, is that data suggested inflation may be waning. The Consumer Price Index, which is a measure of inflation, was released last week. It showed that prices rose more slowly than expected in October. On an annual basis:
November 7, 2022
It’s the lag time.
To no one’s surprise, the Federal Reserve continued to battle inflation last week, raising the federal funds rate for the fourth time this year, reported Claire Ballentine of Bloomberg. The Fed is making borrowing more expensive to dampen demand for goods, which should lower inflation – but it’s not a quick fix.
Rate hikes are kind of like winter planting. In cold weather areas, people sometimes spread grass seed in November with the expectation that it will germinate the next spring. It’s similar for rate hikes. The Fed lifts rates with the expectation that the increases will work their way through the economy over the next 12 to 18 months and bring inflation down, reported Matt Levin of MarketPlace.
October 31, 2022
Some companies are doing better than others – a lot better.
It’s earnings season; the time when companies share how well they performed during the previous quarter. Earnings reports are important because they provide information about a company’s financial health. Shareholders pay particular attention to earnings, which are company profits after expenses have been subtracted.
At the end of last week, slightly more than half of the companies in the Standard & Poor’s (S&P) 500 Index had reported results for the third quarter of 2022. The blended earnings growth rate* for the S&P 500 was 4.1 percent, year-over-year, according to I/B/E/S data from Refinitiv.
October 24, 2022
Markets turned – again.
Markets continue to be volatile. Last week, stocks headed north. Nicholas Jasinski of Barron’s reported the change of direction reflected investors’ desire for the market to finally hit bottom. He may be right, but corporate earnings suggest we are not there yet, according to Bob Pisani of CNBC.
Corporate earnings season is underway. It’s the time when management tells shareholders how their companies performed during the previous quarter. With 20 percent of S&P 500 companies reporting actual results for the three-month period that ended September 30, the blended* earnings growth rate was 1.5 percent. That’s a slower pace of growth than we saw during the previous quarter, but earnings are still growing. The blended net profit margin was 12 percent, which is above the five-year average, reported John Butters of FactSet.
October 17, 2022
We’re not there yet.
Investors are understandably eager for the stock market to hit bottom. Some hoped it happened last week, but it did not.
Despite the Fed’s rate hikes, last week the Consumer Price Index showed the annual rate for headline inflation was 8.2 percent in September. That’s down from June when the annual inflation rate was 9.1%, but a long way from the Federal Reserve’s two percent target. The core inflation numbers, which exclude food and energy, hit at a 40-year high last month.
The news rocked the markets. “A lot of investors are looking at inflation to get guidance on what the Fed is going to do, to find the bottom in the market once the Fed pivots…But looking at CPI, unemployment, there’s obviously a lot of heat in the economy. Inflation is going to take some time to come down,” said a source cited by Stephen Kirkland and Lu Wang of Bloomberg.
October 10, 2022
Last week, OPEC+, which includes the Organization of the Petroleum Exporting Countries and allied oil producers like Russia, chose to cut production by two million barrels a day. The stated goal is to keep crude oil prices above $90 a barrel. The production cut, which will push gasoline and other prices higher, complicates efforts to fight inflation, reported Salma El Wardany and colleagues at Bloomberg.
According to economic data, the Federal Reserve’s inflation fight has produced mixed results, so far. Like the ghosts that visit Scrooge in A Christmas Carol, economic data offers information about what has happened in the past, what is occurring in the present, and what could happen in the future. Recently, the data has been sending mixed signals. Nicholas Jasinski of Barron’s explained:
October 3, 2022
The third quarter marked a change in attitude.
So far, 2022 has been a tough year for investing. We’ve experienced an unusual phenomenon – the simultaneous decline of stock and bond markets. Throughout the third quarter, investors’ concerns focused on global instability, rising prices and the possibility that central bank efforts to tame inflation would cause economic growth to falter. The result has been tremendous volatility in stock and bond markets.
Early in the third quarter, U.S. stock markets gained ground as investors latched onto the idea that inflation had peaked, and the Federal Reserve would soon moderate the pace of rate hikes. Following the release of July’s Consumer Price Index (CPI), Carleton English of Barron’s reported:In the United Kingdom, fiscal and monetary policies collided last week. Britain’s new government plans to encourage economic growth with a stimulus package to offset energy costs and big unfunded tax cuts. The government’s fiscal stimulus plan could spark at the same time Britain’s central bank is trying to tamp inflation down. Investors showed their disapproval by selling U.K. government bonds, which are known as gilts. As yields surged, gilts rapidly lost value, imperiling the nation’s pension funds. The Bank of England staged an emergency intervention, calming bond markets by promising to continue its bond purchases, reported Brian Swint of Barron’s.
September 26, 2022
Central bank tightening sparked recession fears.
Last week, the Federal Reserve (Fed) raised the federal funds rate for the fifth time this year. During 2022, the Fed has lifted its benchmark rate from near zero to 3.12 percent. Fed policymakers indicated that they expect to raise the rate again this year. That’s going to make borrowing more expensive as rates on credit cards, home mortgages and business loans increase.
Frankly, that’s the Fed’s goal. It wants to tamp down consumer and business spending. When spending falls, demand for goods and services falls and so do prices. Lower prices mean lower inflation. Unfortunately, inflation has a long way to fall. The Fed’s inflation target is two percent. In August, the Consumer Price Index showed inflation was 8.3 percent.
September 19, 2022
It’s open to interpretation.
Jackson Pollock was an action painter. He poured, dropped, and dripped paint onto horizontal canvases. Some people look at his work and wonder why it’s highly valued. Others find deep meaning in the paintings. For instance, Pollock’s Convergence is a collage of splattered colors that has been described as “the embodiment of free speech and freedom of expression…It was everything that America stood for all wrapped up in a messy, but deep package.”
Today, gauging the state of the American economy is akin to interpreting abstract art. Many economic indicators suggest the economy remains strong despite the Federal Reserve’s efforts to cool it off. For example:
September 12, 2022
Central banks are hawkish. Stocks popped higher, anyway.
Last week, despite signs that inflation is slowing, U.S. Federal Reserve (Fed) officials emphasized their commitment to tightening monetary policy to lower inflation. Several indicated they anticipate a third consecutive rate hike of 75 basis points, reported Craig Torres and Matthew Boesler of Bloomberg.
Investors seemed to disregard the Fed as U.S. stocks moved higher, snapping a three-week losing streak. The Standard & Poor’s 500 Index finished the week up 3.6 percent, the Dow Jones Industrial Average gained 2.7 percent, and the Nasdaq Composite rose 4.1 percent, reported Christine Idzelis and Joseph Adinolfi of MarketWatch.
September 6, 2022
You may have heard this one: Don’t fight the Fed.
The Fed is the Federal Reserve Bank of the United States. Among other things, the Fed influences monetary conditions in pursuit of price stability and full employment. As we’ve seen recently – with unemployment low and inflation high – the Fed’s job isn’t simple or straightforward.
“Don’t fight the Fed” is a bit of wisdom that encourages investors to align their portfolios with current monetary policy. “The rationale is deceptively intuitive. If the Federal Reserve is cutting interest rates or is generally accommodative, then the ensuing liquidity should provide a positive backdrop for risk assets like stocks. If the Fed is raising rates or constraining liquidity, that activity tends to be a headwind for equities and other assets,” reported Steve Sosnick of Barron’s.
August 29, 2022
Markets were tuned to the signals coming from Jackson Hole, Wyoming.
During World War II, United States armed forces often relied on high-powered radio sets to communicate. When determining whether transmissions were garbled by static or obscured by the sounds of battle, the sender would ask, “Do you read me?” If communications were easily understood, the answer was, “Loud and clear.”
Last week, markets heard U.S. Federal Reserve Chair Jerome Powell loud and clear. He spoke at the Federal Reserve (Fed)’s policy forum in Jackson Hole, Wyoming, and said:
“The U.S. economy is clearly slowing from the historically high growth rates of 2021, which reflected the reopening of the economy following the pandemic recession. While the latest economic data have been mixed, in my view our economy continues to show strong underlying momentum. The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 percent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down. We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent.”
August 22, 2022
Is this a bear market rally or a new bull market?
Investment professionals are in the middle of a heated debate. Since mid-June, United States stock markets have moved higher, regaining about $7 trillion as many investors who had sold shares during the first half of the year began buying again, reported Lu Wang of Bloomberg. The debate is about whether the stock market is in the midst of a bear market rally or a new bull market.
A bull market occurs when share prices rise steadily over time. In a recent Morning Briefing on LinkedIn, Edward Yardeni of Yardeni Research, explained the debate:
“From a fundamental perspective, the bears expect that inflation will remain elevated, forcing the Fed to raise interest rates much higher, causing a severe recession. The bulls, like us, believe that inflation might have peaked in June and that the Fed is likely to pause for a while following one more rate hike of [0.50 to 0.75 percent] in late September. The bears see lots more downside for earnings and valuation multiples. We see flattening corporate earnings through the end of this year and believe that forward valuation multiples bottomed on June 16. In our bullish narrative, the market could move sideways for a while before moving to new record highs next year.”
August 15, 2022
Rally caps were waving.
In recent weeks, investors have embraced the idea that economic data will persuade the Federal Reserve to slow the pace of rate hikes. Last week’s inflation data fanned their enthusiasm.
The big news was that the Consumer Price Index (CPI), which measures inflation, didn’t change from June to July. That doesn’t mean all prices remained the same during the month. They didn’t. For instance, the cost of energy dropped by 4.6 percent, while the cost of food rose by 1.1 percent. When all price changes were combined, the overall result was zero percent inflation for July. Year-to-year, though, the CPI was up 8.5 percent.
August 8, 2022
The strength of the United States economy continues to surprise.
If you have ever been camping, you may have banked your campfire by covering the hot coals with ash. It’s a process that keeps the coals burning low so the fire can be easily rekindled. The U.S. Federal Reserve has been trying to bank the fire of U.S. economic growth – and it’s proving to be challenging.
There are signs that U.S. economic activity is burning less brightly. For example, economic growth declined during the last two quarters, the U.S. housing market appears to be cooling, and consumer sentiment is low, reported Colby Smith of Financial Times. However, last week’s data suggested some parts of the economy are still ablaze.
August 1, 2022
Investors thought they heard a dovish note from the Federal Reserve and markets rallied.
Last week, we learned from the Bureau of Economic Analysis (BEA) that economic growth in the United States slowed for the second consecutive quarter. Economic growth is measured by gross domestic product, or GDP, which is the value of all goods and services produced during a specific period. GDP includes household, business and government spending, as well as exports and imports.
Before inflation, the U.S. economy grew by 6.6 percent in the first quarter of 2022 and by 7.9 percent in the second quarter, according to the FRED Economic Data. After inflation, GDP shrank by 1.6 percent in the first quarter and by 0.9 percent in the second quarter.
July 25, 2022
A lot of people are worried that a recession may be in our future. Some think it may already be here.
Unemployment is low (3.6 percent), and inflation is high (9.1 percent). Both tend to occur when an economy is experiencing strong growth. That makes it difficult to believe the United States is in a recession, but some data is pointing that way.
Last week, the Atlanta Federal Reserve’s GDPNow estimated that economic growth in the United States was -1.6 percent for the second quarter of 2022, after adjusting for inflation. They measured economic growth using gross domestic product or GDP, which is the value of all goods and services produced in the United States over a specific period of time. GDPNow is based on a simple, unadjusted mathematical model. It is not an official reading, and the model tends to be a bit volatile.
July 18, 2022
Nobody is happy, but Americans are feeling more optimistic.
Last week, headlines blasted the new inflation numbers. Prices were up more than 9% year-over-year in June, according to the Bureau of Labor Statistic’s Consumer Price Index (CPI). When you dig into the numbers, energy prices were up 41.6 percent year-over-year and food prices were up 10.4 percent.
“Prices are rising just about everywhere in the world, in part a consequence of Russia's invasion of Ukraine, which has elevated energy and food prices, and in part because of the supply chain bottlenecks that have driven U.S. prices up,” reported Paul Wiseman of U.S. News & World Report.
The U.S. inflation numbers caused markets to tumble early in the week as investors speculated about whether the Federal Reserve would decide to raise the federal funds rate at a faster pace at its next meeting, reported Ben Levisohn of Barron’s.
Then the retail sales and consumer sentiment data arrived.
July 11, 2022
Rising inflation is a bit like a child throwing a temper tantrum in the grocery store.
The red-faced parent, in this case the U.S. Federal Reserve (Fed), tries to calm the child. Sometimes, it works and the child calms down (soft landing). Other times, the child won’t settle, and the parent takes more extreme action, like leaving and coming back for groceries later (recession).
The Fed is laser focused on calming inflation. At a June press conference, Fed Chair Jerome Powell said, “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two and a half years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”
July 5, 2022
The first six months of 2022 have earned a place in history books.
2022 is likely to become part of the lore passed from generation to generation. Stories will be told about this bear market, as well as the remarkable political and social events that have occurred in the United States and elsewhere. Here is a brief look back at the last three months.
- Will the real inflation please stand up? Prices continued to rise during the second quarter, although there was a significant difference in inflation readings. The Consumer Price Index (CPI), which reflects price changes in cities, showed inflation was up 8.6 percent in May, year-over-year. The Personal Consumption Expenditures (PCE) Price Index (excluding food and energy) which measures price changes in urban and rural areas, showed inflation was up 6.3 percent for the same period.
June 27, 2022
Last week, bad news was good news.
Consumers were feeling blue in June, according to the University of Michigan Consumer Sentiment Survey. The survey scored sentiment at 50, which was the lowest level on record. Surveys of Consumers Director Joanne Hsu reported that 79 percent of consumers anticipate business conditions will decline during the next 12 months, and almost half indicated they are spending less because of inflation.
Consumer pessimism was reflected in the S&P Global Flash US Composite PMI™. The Index measured that manufacturing growth was at the lowest level in almost two years. “Declines in production and new sales were driven by weak client demand, as inflation, material shortages and delivery delays led some customers to pause or lower their purchases of goods,” reported S&P Global. The Index was at 52.4. Any reading above 50 indicates growth.
Unhappy consumers and slower growth in manufacturing made investors very happy. Consumer spending drives the economy. So, if consumers begin to spend less and economic growth slows, then the Federal Reserve may slow its rate hikes or raise rates by less. Last week Fed Chair Jerome Powell told Congress:
June 21, 2022
The fight against inflation intensified.
Last week, the Federal Reserve (Fed) delivered a message that it is serious about fighting inflation. The Federal Open Market Committee (FOMC) lifted the federal funds target rate by 0.75 percentage points. The fed funds rate is now 1.50 percent to 1.75 percent.
The Fed also has begun to shrink its $9 trillion balance sheet by selling Treasury securities and agency mortgage-backed securities, a process known as quantitative tightening (QT), reported Kate Duguid, Colby Smith, and Tommy Stubbington of Financial Times (FT). The Fed’s balance sheet expanded greatly during the past few years as it engaged in quantitative easing (QE). QE entailed buying Treasury and agency securities to ease financial conditions, strengthen the economy, and support markets during the pandemic.
June 13, 2022
Inflation is proving to be far more tenacious than markets had hoped.
The idea that inflation peaked in March was put to rest last week when the Consumer Price Index (CPI) showed that inflation accelerated in May. Overall, prices were up 8.6 percent last month, an increase from April’s 8.3 percent. It was the highest inflation reading we’ve seen since December 1981.
The most significant price increases were in energy (+34.6%) and food (+10.1%). That’s unfortunate because the War in Ukraine has a significant influence on food and energy prices right now, and no one knows how long it will last. In April, the World Bank’s Commodity Markets Outlook reported:
“The war in Ukraine has been a major shock to global commodity markets. The supply of several commodities has been disrupted, leading to sharply higher prices, particularly for energy [natural gas, coal, crude oil], fertilizers, and some grains [wheat, barley, and corn].”
June 6, 2022
How strong is the United States economy?
That’s the question investors were mulling after last week’s jobs report.
More jobs were created in May than economists expected, and the labor force participation rate rose, meaning even more people are returning to work. Overall, the unemployment rate remained at 3.6 percent. However, unemployment rates varied by age, sex and race:
- Adult men: 4 percent
- Adult women: 4 percent
- Asian: 4 percent
- Black: 2 percent
- Hispanic: 3 percent
- White: 2 percent
- Teenagers: 4 percent
May 31, 2022
Investors reassessed and markets bounced.
Last week, major U.S. stock indices moved higher for the first time in weeks. The Dow Jones Industrial Average gained 6.2 percent, the Standard & Poor’s 500 Index was up 6.6 percent, and the Nasdaq Composite rose 6.9 percent, reported Ben Levisohn of Barron’s.
The change in investor attitude may have been influenced by a variety of factors, including:
May 23, 2022
On the fear and greed cycle.
One of the most challenging times for investors is a market downturn. Whether markets are experiencing a correction or a bear market, it’s really disturbing to watch the value of your savings and investments decline.
Last week, the CNN Business Fear & Greed Index showed extreme fear was the emotion driving investment decisions. The Index “is a way to gauge stock market movements and whether stocks are fairly priced. The theory is based on the logic that excessive fear tends to drive down share prices, and too much greed tends to have the opposite effect.”
May 16, 2022
Living with a bear.
On the survival series “Alone,” the tension ratchets higher whenever participants encounter bears. Some participants live warily alongside bears, while others tap out. A similar thing happens among investors when they encounter a bear market.
What is a bear market?
People define bear markets in different ways. Some people say a share price decline of 20 percent is bear market territory. Last week, the Standard & Poor’s (S&P) 500 Index was down 19.6 percent before Friday’s rally, according to Ben Levisohn of Barron’s, and the Nasdaq Composite was already down more than 20 percent.
Other people say a bear market occurs when more investors are bearish than bullish. That’s certainly the case today. The Association of Independent Investors’ Consumer Sentiment Index found 49 percent of investors were bearish and 24 percent were bullish last week. Other sentiment indicators, including the Consensus Bullish Sentiment Index cited by Barron’s, also show that investors and investment professionals are feeling more bearish than bullish.
May 9, 2022
There is a lot of uncertainty in financial markets – and markets hate uncertainty.
In recent weeks, economic and financial market data have been telling different stories – and that makes it tough for investors to know where the United States economy is headed. Since stock markets move up and down based on what investors think will happen in the future, markets have been volatile. Here are some of the issues that have contributed to recent uncertainty.
- Is economic growth slowing? At the end of April, the advance estimate for gross domestic product (GDP), which is a measure of economic growth, showed the U.S. economy contracted (-1.4 percent, annualized) during the first quarter of 2022. It was a puzzling piece of information because consumer spending, which accounts for more than two-thirds of economic activity rose by 2.7 percent during the period – after being adjusted for inflation – which suggests the economy is strong. A discrepancy between imports (up) and exports (down) appeared to be the driver behind the decline in GDP. A contraction can be a sign that the economy is weakening.
- Is economic growth continuing? Right now, workers are in demand, which can be a sign of economic growth. Last week’s unemployment report showed stronger-than-expected jobs growth in April. The unemployment rate was 3.6 percent, and average hourly earnings rose by 5.5 percent, annualized. However, the labor force participation rate – the percentage of people who are working or actively looking for work – ticked lower. This could be due to the latest wave of COVID-19, reported Patti Domm of CNBC.
May 2, 2022
Correction and contraction....
Investing during 2022 has been like running a forest trail and having unexpected obstacles appear every so often – a fallen tree, a swarm of biting flies, a bear with cubs – you get the idea. To-date, economic, coronavirus-related, and geopolitical events have taken a toll from stock and bond markets, as well as the U.S. economy. For example:
- Prices were high as we entered the year and have continued to rise. Last week, the Personal Consumption Expenditures Price Index, a broad gauge of inflation across the United States, reported that inflation was 6.6 percent in March 2022, up from 5.8 percent in December 2021.
- The Russia-Ukraine War is pushing inflation higher. Russia and Ukraine are major exporters of energy and agriculture products, and exports have been limited by the war. Consequently, the World Bank’s Commodity Market Outlook forecasts that energy prices will rise by 50.5 percent and non-energy prices by 19.2 percent this year before moving lower again in 2023.
- China is locking down cities to fight a surge of COVID-19 and snarling supply chains. “Ships have been piling up outside Shanghai, the world’s largest port, and other container docks across China as authorities have forced multiple cities into lockdown to counter the country’s worst COVID outbreak since the pandemic began,” reported Eamon Barrett of Fortune. Cross-border restrictions on trucking have also created issues.
- The Federal Reserve began raising the fed funds rate to address inflation. The Fed is expected to raise rates significantly this year as it works to reduce demand and lower inflation. When interest rates move higher, the cost of borrowing increases, and economic activity slows. As a result, some investors are concerned about the possibility of recession.
April 25, 2022
The Federal Reserve’s Ice Bucket Challenge…
Remember a few years ago when people raised money for charity by challenging others to pour buckets of icy water over their heads? Last week, the Federal Reserve poured a bucket of ice water over the United States stock market. Randall W. Forsyth of Barron’s explained:
“In the past week, Fed officials stepped up their rhetorical anti-inflation campaign, with Jerome Powell all but promising a half-point increase in the federal-funds target range at the next Federal Open Market Committee meeting, on May 3-4. And other Fed district presidents raised the possibility of more forceful action, including rate hikes of as much as three-quarters of a percentage point, something the Fed hasn’t done since 1994.”
The Fed’s goal is to slow high inflation, which has been exacerbated by the war in Ukraine and China’s coronavirus lockdowns, without pushing the American economy into a recession. The question is whether the economy is strong enough to continue to grow as the Fed tightens monetary policy – and opinions about that vary.
April 18, 2022
Here’s a riddle: How can inflation be 8.5 percent and 6.5 percent at the same time? The answer is that it depends on how you measure it.
Determining how quickly prices are rising or falling – and where they may be headed in the future – is not simple. In the United States, millions of goods and services are bought and sold every day – shelter, food, transportation, energy, water, education, childcare, equipment and tools, medical care, furnishings, apparel, trash removal, and much more.
The government relies on two indexes: the Consumer Price index (CPI) and the Personal Consumption Expenditures Index (PCE). Each index has two versions: headline inflation and core inflation.
Last week, the Bureau of Labor Statistics (BLS) reported that CPI headline inflation was up 8.5 percent in March, and CPI core inflation was up 6.5 percent.
April 11, 2022
The first quarter of 2022 was jam-packed with volatility-inducing events: rising inflation, war in Ukraine, rising interest rates, sanctions on Russia, and a new COVID-19 outbreak in China.
Here’s a brief review of what happened during:
Inflation continued to rise. At the start of the year, consumers and investors were primarily concerned about inflation. In February, the Personal Consumption Expenditures Price Index showed core inflation, which excludes volatile food and energy prices, was up 5.4 percent year-over-year. That’s well above the Federal Reserve (Fed)’s two percent target for inflation.
The Fed began to tighten monetary policy late in 2021 by curtailing its bond-buying program. Investors expected the Fed to continue fighting inflation in 2022 by raising the federal funds target rate. Raising rates makes borrowing more expensive, which causes consumer and business spending to slow, demand for goods and services to drop, and prices to move lower, reported Carmen Reinicke of CNBC.