Week in Review: September 9, 2022

Markets ended the week higher with the S&P 500 coming out of three consecutive losing weeks. The gains came despite any significant corporate or economic data. Interest rates moved higher as expectations that the Federal Reserve will raise rates another 0.75% at its September meeting rose to 91%, up from 57% at the start of the week. The 10-Year Treasury yield gained 0.11% over the course of the week to end at 3.31%, near its mid-June highs. The 2-Year Treasury yield rose 0.16% to end the week at 3.56%, its highest level since 2007.

Responding to record high inflation, the European Central Bank (ECB) undertook its largest ever rate hike, increasing interest rates by 0.75%. Like the U.S. Federal Reserve, the ECB is determined to quell inflation, which recently rose to 9.1%. However, its efforts are further complicated by Russia’s increasing willingness to cut energy supplies to Europe in retaliation for the continent’s continued support of Ukraine.  Following Russia’s recent shutdown of a major natural gas pipeline, ostensibly for maintenance, European natural gas prices are now ~10x what they are in the U.S. Should Russia continue to constrict its energy exports, Europe’s economy faces a strong likelihood of slipping into recession. The combination of soaring energy prices and a recession would leave the ECB in a difficult position.

Speaking at a conference in the U.S., Fed Chair Jay Powell reiterated the need for the Fed to remain aggressive in its efforts to lower inflation saying that the Fed must act “strongly” and to “keep at it until the job is done.”