Markets “In a Nutshell” for November 15, 2021
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 0.60%, the S&P 500 was down 0.30%, and the NASDAQ fell 0.70%. Foreign stocks (MSCI EAFE) were also down, falling 0.40%. Bond prices were lower for the week, with the 10-year U.S. Treasury ending the week at 1.57%. (Data source: Wall Street Journal)
Last week the October inflation numbers were released and were at the highest levels we have seen in decades. The Consumer Price Index (CPI) was up 6.2% year over year which is the highest reading since 1990. Although this number was a little higher than estimates which were around 5.9%, the market did not have much reaction to the release of the data. Energy prices are a major component of this inflation as gas is now up over 59% year over year and overall energy prices up over 30%. Overall food prices are also up 5.3% year over year and foods such as eggs, fish, and meat are now nearly up 12% over the past year. A combination of labor shortage, higher demand, supply chain disruptions, and the amount of money that has been pumped into the economy has caused inflation to run hot.
Fed Reaction to Inflation
Before the pandemic the Fed had been trying to get inflation to its 2% goal as the 10 years prior CPI was 1.6% a year on average. Now the Fed has a new goal of getting inflation back down to the 2% levels. Some now worry that the Fed will have to raise hikes faster than expected which could cause volatility in the markets. Although Chairman Powell has said that inflation is transitory, he has recently shifted his view and said some of the inflation is not transitory. Continuing high inflation numbers may force the Fed to raise rates sooner than they had hoped. Although there is much worry about inflation, the S&P 500 is still up nearly 24% on the year as equities are typically a good hedge against inflation.
What is the highest Fed Funds Rate we have seen? (Scroll Down for Answer)
Have a Great Week!
4) 20%; In 1980 the Fed Funds rate was 20% to try and slow down the double-digit inflation at that time.