Markets “In a Nutshell” for March 14, 2022
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 2.00%, the S&P 500 was down 2.90%, and the NASDAQ fell 3.50%. Foreign stocks (MSCI EAFE) were up, rising 0.90%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 2.00%. (Data source: Wall Street Journal)
Last week the new CPI (Consumer Price Index) number was released and was a new 40-year high at 7.9%. This year-over-year increase came in around what most expected as inflation has continued to persist unlike some first believed. It is good to keep in mind that this new read on inflation does not include the spike in energy prices we have seen since Russia invaded Ukraine. We will not see that increase accounted for until the next CPI read in a little less than a month. Many believe if energy prices stay where they are then we could see a CPI increase year over year of 8%-10%. Over the past 5 years, oil prices and CPI have had a pretty strong correlation and is the reason some worry how much further these energy prices will push inflation.
Inflation & The Fed
The Fed has shifted its focus from full employment to trying to slow down this inflation we currently are seeing. The Fed had been very accommodating to the U.S. economy during the pandemic by lowering rates to 0 and buying billions in bonds each month. Now the Fed must change those policies and try to slow the inflation we are currently experiencing. This will be the last month the Fed buys bonds as they have been and it is highly expected they will also start to raise rates. A few weeks ago a 0.50% increase in rates seemed like a real possibility but now it is almost certain a 0.25% rate hike will come. This shifted once Russia invaded Ukraine and caused some uncertainty for the world economy. The focus of the market will be on the Fed’s meeting this week and what Powell has to say about inflation, the invasion of Ukraine, and how that may affect the economy here in the United States.
When was the last 0.50% rate hike? (Scroll Down for Answer)
Have a Great Week!
3) 2000, the last 0.50% rate hike was in May of 2000. This came after five (5) 0.25% rate hikes in the months prior. If inflation continues to get hotter as the Fed begins to raise rates, we could see a similar approach if 0.25% hikes are not helping