|Stubborn doesn’t seem like a strong enough word, but that’s how Fed officials are describing inflation.
Inflation’s “stubbornness” has been on full display in recent weeks: First, the Producer Price Index (PPI) showed that costs remain high for producers of goods and services. Then in September’s more widely followed Consumer Price Index (CPI) high prices continued to persevere.
To address inflation, the Fed’s primary tool is short-term interest rates. As it pushes rates higher, the Fed aims to slow the economy by raising borrowing costs. As economic activity cools, the Fed expects to see the CPI and PPI trend lower.
In the table below, you can see what professional traders anticipate will happen with interest rates over the next year. They expect the Fed will have to raise short-term rates to nearly 5% in 2023 to lower inflation.
|We know this year has had its ups and downs. Just when it appears to have turned a corner, something else happens, and the financial markets are under pressure again.
You may have heard the old saying: “Don’t worry about the horse, just load the wagon.” Now is an excellent time to stay focused on what you can control, like your “wagon,” and we’ll keep an eye on the “horses” in the meantime.
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|Stocks posted losses in a holiday-shortened trading week as the first-quarter earnings season kicked off and investors digested new inflation data.The Dow Jones Industrial Average declined 0.78%, while the Standard & Poor’s 500 fell 2.13%. The Nasdaq Composite index dropped 2.63% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.20%.1,2,3|
Stocks began the week moving lower as bond yields climbed higher, with growth stocks suffering some of the steepest declines. Investors considered China’s ongoing lockdown warily, worried it might worsen supply-chain issues.
Historically high consumer and producer price inflation reports were shrugged off by the stock and bond markets in the main, with bond yields slipping despite the hot inflation numbers. Despite an encouraging start to the first-quarter earnings season, stocks pulled back on Friday as bond yields resumed their move higher ahead of a three-day holiday weekend.
An Eye on Inflation
On Tuesday, March’s Consumer Price Index (CPI) report offered little indication that inflation may be moderating, as prices increased 8.5% year-over-year, the fastest pace in 40 years. Core inflation, excluding food and energy prices, recorded a 6.5% jump, the steepest rise since August 1982. One encouraging note was that core inflation showed potential signs of ebbing, posting a monthly increase of 0.3% versus expectations of a 0.5% increase.4
The following day, March’s Producer Price Index, a potential insight into future inflation, rose 11.2% year-over-year. A March survey by the National Federation of Independent Business released earlier in the week, indicated that half of the respondents were likely to raise prices in the next three months.5
This Week: Key Economic Data
Tuesday: Housing Starts.
Wednesday: Existing Home Sales.
Thursday: Jobless Claims. Index of Leading Economic Indicators.
Friday: Purchasing Managers’ Index (PMI) Composite Flash.
Source: Econoday, April 14, 2022
This Week: Companies Reporting Earnings
Monday: Bank of America Corporation (BAC), J.B. Hunt Transport Services, Inc. (JBHT).
Tuesday: Netflix, Inc. (NFLX), Johnson & Johnson (JNJ), International Business Machines Corporation (IBM), Lockheed Martin Corporation (LMT), Prologis, Inc. (PLD).
Wednesday: Tesla, Inc. (TSLA), The Procter & Gamble Company (PG), Lam Research Corporation (LRCX), CSX Corporation (CSX).
Thursday: AT&T, Inc. (T), United Airlines Holdings, Inc. (UAL), Snap, Inc. (SNAP), Blackstone, Inc. (BX), Union Pacific Corporation (UNP), Dow, Inc. (DOW).
Friday: Verizon Communications, Inc. (VZ), American Express Company (AXP), KimberlyClark Corporation (KMB).
Source: Zacks, April 14, 2022
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